Corporations Flashcards
Unless the articles of organization or operating agreement state otherwise, who manages an LLC?
Members of the LLC
A merger between a parent corporation and a subsidiary corporation, when the parent owns at least _____of the voting power of each class of outstanding stock of the subsidiary, may occur without the approval of the shareholders of the subsidiary.
80%
How can a person become a member of an existing LLC?
(1) as provided in the operating agreement;
(2) as the result of a merger, an interest exchange conversion, or domestication;
(3) with the consent of all the members; or
(4) when a dissolved LLC has not had members for 90 consecutive days, by consent of transferees owning the right to receive a majority of the distributions.
Statement of Authority (SoA)
An LLC may file a statement of authority regarding status (member or manager) or position
(or office) of a person in the LLC, and it may also set limits on each person’s authority.
A judgment creditor of a member of a multi-member LLC has as his only remedy a ____________.
charging order
What is the minimum number of directors required for a not-for-profit corporation?
3
matt, his sister, and his mom. broke.
An LLC is dissolved and must wind up its business upon the occurrence of:
i) An event that the operating agreement states causes dissolution;
ii) The consent of all the members; or
iii) The passage of 90 consecutive days during which the company has no members, unless
(a) consent to admit at least one specified person as a member is given by transferees owning the rights to receive a majority of distributions; and
(b) at least one person becomes a member in accordance with the consent.
What must an LLC’s articles of organization state?
(i) the name of the LLC,
(ii) the address of the principal office, and
(iii) the name, address, and written acceptance of the company’s registered agent
In general, upon liquidation, a _____________ of the corporation will take precedence over a preferred shareholder with regard to the corporation’s funds, and a preferred shareholder will take precedence over a _________________.
secured creditor; common shareholder
Prior to formation of a corporation, what is the role of a promoter?
To engage in activities in order to bring the corporation into existence as a business entity.
How many directors must a Florida corporation have?
at least 1
u need at least 1 bod!
What provisions cannot be altered by the operating agreement?
the statutory provisions governing, among others, registered agents, dissolutions, mergers, indemnities, and the rights and obligations of members and managers.
What is the two-step approval process to amend the articles of incorporation if the company has issued stock?
(1) The board of directors must adopt the amendment to the articles;
and
(2) the shareholders have to approve the amendment by majority vote.
A corporation can protect itself against the failure to render future consideration by placing the stock in an ___________________or otherwise restricting the transfer of the stock until the promised services are performed, the promissory note is paid, or the promised benefit is received.
Escrow account
Upon a finding of ___________, Florida courts refuse to recognize the de facto status of a corporation.
bad faith
In Florida, what is the primary cause of action available to persons who have traded stock?
Fraud
Does Florida issue a certificate of incorporation?
no
Unless otherwise specified, how long is a proxy good for?
11 months
May a domestic corporation merge with one or more domestic or foreign eligible entities in the state of Florida?
yes
Benefit corporation or “B Corp”
a for-profit entity with a corporate purpose of creating or pursuing a general public benefit, which is anything that has a “material, positive effect on society and the environment.”
Is stock freely transferable in FL?
Yes
Are stock restrictions permissible?
Yes, the stock restriction must be:
(1) Reasonable
- total ban isn’t reasonable
- right of first refusal is reasonable
(2) Conspicuous to people
ultra vires
> abolished in FL
when the articles of incorporation state a narrow business purpose and the firm then conducts activities outside the stated purpose
can a third party challenge an ultra vires act?
No, only
> shareholder
> the corporation against a director/officer
> the state
To pursue a private cause of action for the fraudulent sale of a stock/security, a plaintiff must meet 7 reqs (BID BIRD):
(1) P must’ve bought or sold a security
(2) transaction involved the use of INTERSTATE commerce
(3/4) D engaged in fraudulent/DECEPTIVE conduct relating to basic material info
(5) D cted with intent or recklessness
(6) P relied on D’s conduct
(7) P suffered damages
actions for short swing profits
An insider should be restricted from rapid trading profits related to her firm’s stock
What decisions require a shareholder vote?
> selection of BOD
fundamental corp changes like merger or amending the articles
Quorum
needed for shareholder vote to be valid
> needs maj votes
> can be lowered max to 1/3
> remote fine
voting for directors
> Plurality Voting:
nominee with the most votes wins
> Cumulative Voting:
Number of shares you own X number of open director positions
Direct Shareholder Actions
(1) An action to recover for harm linked to their rights as a shareholder
(2) An action that does not arise based on the plaintiff’s status as a shareholder
Derivative Actions
Shareholder seeks to compel the corporation to file a lawsuit to recover for harm suffered by it
*cant be brought by a creditor
Piercing the Corporate Veil
corp AND shareholders could be liable
BOD voting reqs
> quorum aka a majority needed at meeting
maj vote win
cant enter into voting agreements
true or false:
Shareholders may alter the way in which a corporation is managed through a shareholder management agreement.
true
Must both voting trusts and voting pools be in writing?
yes
A corporation’s articles of incorporation must include what info?
> the corporation’s name and the address of its principal office
> number of shares of the corporation
> the name and address of the corporation’s registered agent and
> the name and address of each incorporator
Reqs to become an S corporation
> max 100 shareholders
shareholders must be individuals, estates, certain exempt organizations, and certain trusts
shareholders must be US citizens or permanent residents
corp can’t have more than 1 class of stock
each shareholders must elect the copr to become as S corp
*S corps are just taxed once
When a corporation transfers its assets to another entity, is that transferee entity responsible for the tort liabilities of the transferor?
No, unless it assumes liability
A promoter is personally jointly and severally liable for liabilities created while acting on behalf of the future corporation unless what?
if the corporation subsequently releases the promoter from liability with a novation
> adopting a K doesn’t release promotors from liability
Shareholders have a right to inspect corporate records. However, the inspection of some types of records, such as minutes from board meetings, require the shareholder to have a proper purpose.
For removal by shareholders, a director can be removed only at a meeting of the shareholders that’s stated purpose is the removal of the director.
A foreign corporation (corp in another state) must register with the Florida Department of State to bring or maintain legal actions in Florida.
A shareholder may pursue involuntarily dissolution of the corporation if:
> shareholders are deadlocked
directors are deadlocked in voting power + shareholders cant break it + there’s risk of irreparable injury
acts of directors are oppressive, illegal, fraudulent
the corporate assets are being misapplied or wasted
corp has abandoned its business and failed within a reasonable period of time to liquidate and distribute its assets and dissolve.
If an operating agreement does not state how profits and losses should be allocated, then they should be allocated based on each member’s contributions.
Shareholders must approve a decision to undertake a merger when the corporation will not survive the merger.
When a member withdraws from a limited liability company can it continue to operate without the approval of the withdrawing member if there are remaining members?
Yes and the remaining members are not required to buy out the withdrawing member
Shareholders do not owe a fiduciary duty to their corporations, but a duty to minority shareholders may arise when the controlling shareholder sells her interest to an outsider
Officers who have a material financial interest in a transaction may breach their duty of loyalty to the corporation.
An ultra vires act can only be challenged by
(1) a shareholder or the state suing to enjoin the action
or
(2) by the corporation taking action against the person engaging in the act.
otherwise could be found enforceable
A person who enters into a contract with a corporation may not challenge the contract on the grounds that it is an ultra vires act.
it needs to be the:
> shareholder
> state
> corporation itself
In Florida, can a professional corporation situation exist if it offers multiple professional service?
No, a professional corporation can only render a single professional service
In Florida, a quorum exists when there is a majority based on the total number of directors present.
A majority of the quorum is required to pass a resolution of a corporation’s board of directors.
If there are 20 members on a BOD. And 13 are present to vote to adopt an amendment. What’s the minimum amount of directors needed for it to pass?
7 bc thats the majority of 13
what kind of consideration will a corp accept for its stock?
Any tangible or intangible property or a benefit to the corporation may be accepted by a corporation as consideration for its stock.
are written voting pool agreements enforceable in Florida?
yes
FL doesn’t corporations to make distributions if they’re insolvent or if the distribution would make them insolvent.
What are the 2 tests that a FL Corp must pass to be solvent and be able to make distributions?
(1) Equity test
a corporation must be able to pay off its debts as they come due in the ordinary course of business
(2) Balance Sheet Test
a corporation’s total assets must exceed its total liabilities plus liquidation of preferences.
what must a shareholder do to exercise their right to inspect and copy corporate records, books, papers, etc?
give five days’ written notice.
who are directors elected by?
directors are elected by shareholders via straight or cumulative voting.
of shares = # of votes
Unlike shareholders, directors may not enter into enforceable voting agreements among themselves.
The transfer of a membership interest to another person does not automatically give that person the right to participate in the management of the LLC.
Instead, the transferee merely acquires the transferor’s right to share in the LLC’s profits and losses.
A director who is present at a board meeting may be liable for action taken by the board even if the director does not vote in favor of the action, unless the director manifests his dissent.
unless a director dissents he is gonna be liable for action taken by the board even if he doesn’t vote
Unlike a shareholder, who will be counted for quorum regardless of why he is there, a director must be present at the time a vote is taken during a board meeting in order to be counted for quorum purposes with respect to the action for which the vote is taken.
When a surviving corporation does not own at least 80% of the merged corporation’s outstanding stock, is a majority vote of shareholder shares required for merger approval?
yes
Because a stock split does not result in a distribution, it is not subject to distribution insolvency tests.
a stock split isnt a distribution
All LLC members must consent to the addition of new members.
a corp’s BOD make up little committees and those committees tsks themselves w things like audit committees
they cant:
> fill vacancies on the board of directors
> adopt, amend, or repeal bylaws
> Approve, recommend to shareholders, or propose to shareholders actions that statutorily require shareholder approval.
> authorize the issuance, sale, or reacquisition of shares, unless pursuant to a formula or method, or within limits prescribed by the board
a committee needs at least 1 director
but if the committee is to make a recommendation to the court of whether or not to dismiss a derivative action is best for the corp, then there needs to be TWO directors
Shareholders of merging corporations must approve of the merger plan. At the shareholder meeting, a quorum of shareholders must be present, and the merger plan must be approved by a majority vote.
A controlling shareholder does not need to own 50% of the corporation’s shares, plus one, to be a controlling shareholder, because the other shares could be widely dispersed and not actively voted.
A promoter is personally jointly and severally liable for liabilities the promoter created before the corporation existed.
A corporation is liable for contracts entered into on its behalf before incorporation if it adopts the contract, uses its benefits, or enters into a novation.
what does a FL Corp have to include in its filing of its annual report w the Dept of State?
- the corporation’s name
- date of incorporation
- principal office location
- tax identification number
- names and addresses of all the corporation’s principal officers and directors
A share exchange is when one corporation acquires stock in a second corporation and thereby secures control of the second corporation without going through the merger process.
However, as in a merger, a dissenting shareholder is given a right of appraisal.
This means that the shareholder can force the corporation to buy his shares at a fair value as determined by an appraisal.
so if u don’t wanna participate in the stock exchange, then ur a dissenting shareholder. Then you’re entitled to an appraisal ad to be paid a fair value for your shares
A shareholder who dissents to a share exchange is entitled to a right of appraisal and to be paid a fair value for his shares.
In Florida, a corporation’s name must contain the word corporation, company, incorporated, or an abbreviation thereof.
An LLC is formed by signing and delivering articles of organization to the Department of State for filing.
The board of directors may pass measures by a majority vote of the directors in attendance at a meeting
But directors may not vote by proxy.
issuance of stocks
~ can only issue what’s authorized
~ fractional shares ok
~ share certificate not required
~ The right to issue stock lays with the board of directors not shareholders
who can vote by proxy?
shareholders can vote by proxy
BOD can’t vote by proxy
A member of an LLC may transfer her interest to another. However, this transfer does not include the right to participate in the management of the LLC.
After dissolution, a corporation ceases to exist as an entity. However, the corporation may still take actions for the limited purpose of winding up its affairs, such as filing a lawsuit to settle a liability.
May a prospective member also be the authorized representative for an LLC?
yes
A circuit court may dissolve an LLC in a proceeding brought by:
(1) the Department of Legal Affairs,
(2) a manager or member of the LLC, or
(3) the LLC itself.
In Florida, when the statutory requirements for incorporation have been satisfied, a ___________ corporation is created.
de jure
True or False: A member of an ongoing LLC has a right to a distribution before dissolution and winding up the LLC.
no
How many days does the LLC have to respond to a demand for information regarding the LLC?
10
True or False:
All members of a member-managed LLC retain statutory apparent authority to bind the LLC.
true
True or False:
The duty of loyalty may be waived in the LLC’s operating agreement.
true
True or False:
A promoter is personally liable for acting on behalf of a corporation if he acts with knowledge that there was no incorporation.
true
Fill in the blank. _______________ may be filed with the state to correct an inaccuracy or defect in the articles.
Articles of correction
Florida regulations governing the sale of securities (known as “blue-sky laws”) are the same as the blue-sky law as dictated in Federal SEC Rule 10b-5.
true
The articles or the bylaws cant prohibit an internal corporate claim in all Florida courts or require such claims to be determined by arbitration.
True or False:
An operating agreement may be an oral or implied agreement of the LLC members.
In order to withdraw from a member-managed or manager-managed LLC, the withdrawing member/manager must:
> file statement of dissociation with the dept that has the date they’re withdrawing
a statement in writing that the LLC was notified of the dissociation
What is the statutory procedure for merging a corporation in the state of Florida?
i) BOD for each corp must adopt a plan of merger;
ii) The shareholders of each corporation must usually adopt the plan of merger; and
iii) The required documents (e.g., articles of merger, amended articles of incorporation) must be filed with the department.
Fill in the blank. Florida imposes a __% state income tax on corporations after an exemption of $50,000 of net income.
5.50%
In Florida, a ___________________is a corporation with a purpose that is statutorily limited to the rendering of a professional service
A ________________ is an LLC subject to a similar limited purpose.
professional corporation;
professional limited liability company
what words must an LLC contain?
> LLC
Limited Liability company
Generally, a special meeting may be called by the board of directors or by shareholders who own at least ____ of the shares entitled to vote at the meeting, but the articles may set a higher percentage of no more than ___.
10%
50%
What two duties does a director owe to the corporation?
(i) a duty of care
(ii) a duty of loyalty
can directors be removed?
yes, with or without cause by shareholders at a shareholder meeting
*unless the articles say otherwise
when a member of an LLC transfer their membership interest what rights does the transferee get?
> the right to share in distributions by the LLC
NOT the right to participate in its management
If a corporation provides preemptive rights but does not spell out the substance of those rights, then statutory restrictions apply.
Statutory restrictions indicate there is no preemptive right with respect to:
- shares issued as compensation to directors, officers, agents, or employees of the corporation
- shares issued to satisfy option rights created to provide compensation to directors, officers, agents, or employees of the corporation
- shares authorized in the articles and issued within six months of incorporation
- shares issued pursuant to a court-approved reorganization or
- shares issued for consideration other than money.
is a shareholder of a professional corporation liable for malpractice of their employees just for being a shareholder?
no
abbvs for professional corps
> chartered
professional association PA; P.A
PLLC
all shareholders in a professional corporation must be a member of the same profession and must be appropriately licensed
A director is not deemed to have derived an improper personal benefit from a transaction if such benefits are disclosed or known to all directors voting on the matter and the transaction was approved by at least two directors who comprise a majority of the disinterested directors.
A quorum is the shares needed for a valid vote.
For director meetings a quorum must be present at the time the vote takes place, not necessarily at the start of the meeting.
A not-for-profit corporation must have three directors on its board at all times, unless the articles of incorporation or bylaws require more.
Florida’s Control Share Acquisition Statute applies only to Florida corporations. It does not apply to foreign corporations, even if they are headquartered in Florida.
A director is entitled to recoupment from the shareholder’s portion of an unlawful distribution if the shareholder knowingly accepted a unlawful distribution.
parties to an agreement restricting stock transfers are bound by the terms of the contract.
Other parties are also subject to those restrictions if they are aware of them.
In actions to enforce shareholder rights, the shareholder must plead and prove a direct harm and a special injury.
A harm is direct if the harm suffered by the shareholder does not flow from an initial harm to the corporation, and a special injury results when the injury is separate and distinct from those sustained by the other shareholders.
In Florida, a merger must be approved by a majority vote of each class of stock entitled to vote.
the approval requires an absolute majority of the shares entitled to vote in each class (not just a majority of votes cast)
merger = absolute maj of all votes
