Corporations

Question 1

What documents must be publicly filed to incorporate in FL?

Answer 1

Only the Articles of Incorporation with the Dept. of State.

-NOTE: Bylaws are the internal rules/regulations which govern the corporation, the shareholders, the officers and the directors. They do not need to be filed with the State.

Question 2

What are ‘fundamental changes’ and who must approve them?

Answer 2

Shareholders (by a majority vote) must approve fundamental changes such as:

1) Merger;

2) Amendment of the Articles;

3) Sale of all or most assets; and

4) Dissolution.

Note: The mortgaging of assets to secure a line of credit is NOT a fundamental chnage and does not require shareholder approval.

Question 3

Can the Articles of Incorporation raise the voting requirements for shareholders?

Answer 3

Yes - to protect minority shareholders in a CLOSELY HELD CORPORATION, the Articles may require a larger percentage than a majority vote.

Question 4

Does a Board of Directors always have to manage a corporation?

Answer 4

No - a corporation with 100 or fewer shareholders may provide in the Articles the person(s) who will perform the duties of the Board.

-This person need not be a director.

Question 5

Who typically manages the day-to-day decisions of the corporation?

Answer 5

Unless otherwise provided in the Articles, the directors make the day-to-day management decisions of the Corporation.

Question 6

Definition of Ultra Vires Act

Answer 6

An ultra vires act is one not within the express or implied powers of the corporation and in certain situations may be asserted lawfully.

The validity of corporate action may not be challenged on the grounds that the corporation lacks or lacked the power to act, except in certain situations provided below:

These exceptions include challenges made:

(1) by a member against the corporation to enjoin the act,

(2) by the corporation itself or through legal representatives against an incumbent or former officer, employee, or agent of the corporation, or

(3) by the Attorney General to dissolve the corporation or enjoin it from unauthorized business.

Question 7

When may ultra vires be asserted lawfully against a corporation?

Answer 7

Ultra vires, or lack of corporate capacity or power, may be asserted lawfully in 3 situations:

1) In a proceeding by a shareholder against the corporation to enjoin the act;

2) In a procedding by the corporation against the incumbent or former officers or directors; or

3) In a proceeding by the Attorney General to dissolve the corporation or to enjoin the corporation from the transaction of unauthorized business.

Question 8

Subscription Agreements

Answer 8

-Must be IN WRITING and SIGNED BY THE SUBSCRIBER

-A subscription for shares of a corporation to be organized is irrevocable for 6 MONTHS, unless otherwise provided by the terms of the subscription agreement or unless all the subscribers consent to the revocation of the subscription.

Question 9

What must be included in the Articles of Incorporation?

Answer 9

The Articles must include (1) the name of the organization, (2) the name of the registered agent, and (3) the address of the registered agent.

-They must also include (4) relevant information regarding stock, (5) the name of each incorporator, and may contain other provisions.

Question 10

What must be included in the corporate name of the corporation?

Answer 10

The corporate name must include the word “corporation”, “incorporated”, “company” or such other word, abbreviation, etc. as will clearly indicate that it is a corporation instead of a natural person or partnership.

Question 11

Creation of a Voting Trust

Answer 11

Any number of shareholders of a corporation may create a voting trust, which involves a transfer of LEGAL TITLE of shares to a trustee who votes them for a specified period according to the trust terms.

A voting trust may be created by:

1) Entering into a written agreement specifying the terms and conditions of the voting trust;

2) Depositing a counterpart of the agreement with the corporation at its principal office; and

3) Transferring the shares to the trustee.

Question 12

Is there a time limit which voting trusts may be valid for? Can they be extended?

Answer 12

No time limit. At any time before the expiration of the voting trust agreement as originally fixed or as extended 1 or more times, all or some of the parties to the voting trust may, by agreement in writing, extend the duration of the voting trust agreement for an additional period.

Question 13

Who may bring an actiuon for involuntary dissolution of the corporation?

Answer 13

Any shareholder may bring an action for involuntary dissolution to establish that:

1) The directors are DEADLOCKED in the management of the corporation;

2) The shareholders are UNABLE TO BREAK THE DEADLOCK; and

3) IRREPARABLE INJURY to the corporation is being suffered or threatened as a result.

NOTE: The Board of Directors DO NOT have the power to petition for dissolution.

Question 14

What types of stocks have preemptive rights?

Answer 14

To the extent that preemptive rights are provided for in the Articles of Incorporation, shareholders of a FL corporation will have the preemptive right to acquire unissued shares of the corporation.

Question 15

Voting Trusts: Legal Title vs. Equitable Title

Answer 15

A voting trust involves the transfer of legal title of shares to a trustee who votes them for a specified period of time.

Equitable ownership remains with the shareholder who continues to be entitled to any dividends or distributions and all other rights except voting.

Question 16

What must be alleged in the complaint to bring a derivative suit?

Answer 16

FL’s statute requires that P allege WITH PARTICULARITY in his complaint that he has made a demand upon the directors to take a certain desired action and that the demand was IGNORED OR REFUSED.

Question 17

What is the contemporaneous ownership rule?

Answer 17

This rule requires that P be a shareholder at the time of the transaction complained of (i.e., can’t purchase a lawsuit), or that his interest be devolved upon him by operation of law (i.e., devised) from a person who was a contemporaneous owner.

Question 18

When may the bylaws of a corporation be inspected?

Answer 18

The bylaws of the corporation must be kept by the corporation and are subject to inspection during regular business hours.

-Must provide WRITTEN NOTICE of demand at least 15 BUSINESS DAYS before the date of inspection.

Question 19

When may the corporate records of account be inspected?

Answer 19

A shareholder is entitled to inspect and copy, at any reasonable time, the corporate records of account provided he makes a WRITTEN DEMAND on the corporation AT LEAST 5 BUSINESS DAYS before he desires to inspect the records and so long as:

1) He makes the demand in good faith and for a proper purpose;

2) He describes with reasonable particularity his purpose and the records he seeks to inspect; and

3) The records are directly connected with that purpose.

Question 20

When may a list of the names and addresses of all directors and officers be inspected?

Answer 20

A shareholder is entitled to inspect and copy a list of the names and addresses of all directors and officers during regular business hours, provided that he give written notice of his demand at least 15 DAYS before the date he wishes to inspect them.

Question 21

When may a corporation declare a dividend?

Answer 21

As long as the corporation is able to pay its debts at they come due and the Articles do not specifically prohibit such a declaration and payment, the corporation may declare and pay a dividend based upon a fair valuation of the corporate assets.

Question 22

Can stock be purchased in exchange for property where the value of the property is equal to the value of the stock?

Answer 22

YES.

Question 23

Can stock be sold in exchange for a promise to render services to the corporation?

(even if such promise is made by a Director?)

Answer 23

YES.

Question 24

Preemptive Rights

Answer 24

Must be expressly set forth in the articles of incorporation.

-These are the rights of existing shareholders to acquire newly issued share options or securities having conversion or option rights in proportion to their holdings or original shares.

Question 25

Even if shareholders do not have preemptive rights, how else can they protect their proportionate interest?

Answer 25

They can protect their proportionate interest if shares are issued by management in violation of their fiduciary duties.

-In a closely held corporation, the Board must give the opportunity to purchase to other shareholders and it would be a breach of duty for a director to authorize a sale to himself alone.

Question 26

How long is a proxy valid for?

Answer 26

Unless otherwise provided, a proxy is not valid after the expiration of 11 MONTHS from the date thereof.