Corporations

Question 1

Promoter

Answer 1

someone who collects whatever is necessary for the business to get up and running

Question 2

Corporate liability for pre-incorporation transactions; exception

Answer 2

Not liable, except if corporation RATIFIES transactions that the promoter entered into

Question 3

Articles of Incorporation: Required info

Answer 3

1) Name of Corporation, must included words corporation, incorporated or company
2) Street address and mailing address of corp’s headquarters
3) Service of process information
4) names & addresses of each incorporator
5) number of shares

Question 4

Defective Incorporation

Answer 4

1) If DOS accepts and files articles, it is conclusive proof that the corp has been est. successfully, even if there is some defect; EXCEPTION: not proof in state proceeding to revoke charter
2) court may find DE FACTO corp if GOOD FAITH effort to file the articles
3) holding oneself out as a corp, cannot deny that they are corp if sued

Question 5

Corporate Purpose

Answer 5

A FL corp’s purpose is to engage in any or all lawful business; articles of incorporation can narrow corp’s purpose

Question 6

Ultra Vires acts

Answer 6

when corp acts outsides its stated purpose

Question 7

Recourse for ultra vires acts

Answer 7

1) Shareholder may sue to enjoin corp’s acts
2) corp can sue (eg injunction on managers)
3) State can sue

Question 8

When can a court uphold a challenge for ultra vires acts?

Answer 8

1) when it is equitable to strike down the ultra vires act

2) All affected parties are joined in the suit

Question 9

Which parties receive damages in a suit against a corp for ultra vires acts?

Answer 9

1) Both corp and 3rd parties dealing with corp

2) Damages may not include anticipated profits

Question 10

FL Corporation income tax

Answer 10

5.5%, after exemption of $25K income

Question 11

Annual Report

Answer 11

must be filed annually or corp may be dissolved

Question 12

Stocks

Answer 12

Corps must have stocks

stocks are divided into different classes

Question 13

Two rights that each one class of stock must have in a corp

Answer 13

1) Final voting power
2) ability to receive net assets

Do not need to be held by same class of shares
all shares do not need to have these rights

Question 14

Who issues shares in a corporation?

Answer 14

1) Board of directors

2) Shareholders with authorization from articles of incorporation

Question 15

Pre-incorporation subscription of shares - irrevocable for how long?

Answer 15

6 months

Question 16

Distribution

Answer 16

transfer by the corp to the shareholders of money or profit

Question 17

A corp may not issue distributions if:

Answer 17

1) the company would not be able to pay the debts

2) it would immediately cause the company to have less money than its current debts

Question 18

Priority stock shares

Answer 18

have priority over common stock shares in the receipt of distribution

Question 19

Priority of claims upon liquidation of the company

Answer 19

1) creditors
2) preferred shareholders
3) common shareholders

Question 20

Who can call an special shareholder meeting?

Answer 20

1) directors

2) shareholders with 10% of outstanding shares

Question 21

By default, what is the quorum required for shareholder meeting?

Answer 21

50%

Question 22

how can quorum requirement be increased? decreased?

Answer 22

increased via Articles of Incorporation; cannot be decreased

Question 23

Shareholders w/ 100 or fewer shareholders may unanimously enter into agreement that:

Answer 23

1) eliminates the board of directors
2) limits the power of the board
3) permit 1 shareholder, or any group of them, to exercise corp powers

Question 24

Shareholder Suits (2 types)

Answer 24

1) direct

2) derivative

Question 25

Requirements for derivative suit

Answer 25

1) shareholder must make demand on the board, UNLESS demand would be futile or delay would lead to irreparable injury

Question 26

When may plaintiff shareholder in a derivative action seek reimbursement from the corp for litigation expenses?

Answer 26

when corp recovers substantial benefit

Question 27

when may a corp that is a defendant in a derivative action seek reimbursement from plaintiff for litigation expenses?

Answer 27

1) when shareholder uses suit for improper purpose (subjective)
2) no reasonable cause (objective)

Question 28

Shareholders duties to one another

Answer 28

1) generally shareholders do not owe a duty to one another
2) though, a shareholder may owe a fiduciary duty to other shareholder when the shareholder seeks to freeze out minority shareholders or when they are treated differently by the corp

Question 29

Who determines how directors are paid?

Answer 29

directors

Question 30

committees

Answer 30

established by director
committees have at least 2 members
board may remove committee member(s) at will

Question 31

business judgment rule

Answer 31

defense;
However, director liable for breach of care if:
1) consciously disregarded the interests of the corp OR
2) otherwise engaged in willful misconduct

Question 32

self-dealing

Answer 32

1) violates duty of loyalty

Question 33

Directorial conflict of interest

Answer 33

violated duty of loyalty

1) full disclosure of interest/disinterested director approves
2) full disclosure of interest & shareholder approves
3) transaction fair & reasonable to corp

Question 34

Indeminfication

Answer 34

1) corps MUST indemnify directors for reasonable costs incurred in successfully defending claim
2) corps MAY indemnify for all breaches of duty of care as long as acted in good faith
3) corps MAY not indemnify directors for breaches of the duty of loyalty
Damages: advances of litigation expenses, or liability insurance

Question 35

Long form merger, requirements

Answer 35

1) directors of both companies must approve merger
2) MAJORITY of voting power of shareholders must approved merger
3) certain required docs must be filed w/ state

Question 36

short term merger

Answer 36

merger between parent and subsidiary does not require approval of corp voting bloc of directors if parent owns 80% of voting power class of stock in the sub.

Question 37

Asset acquisition sale- who approves

Answer 37

1) directors and shareholders must approve the sale

Question 38

objection to the merger

Answer 38

1) shareholder has right to vote on the merger
2) shareholder must send written objection to the corp of their objection, before merger vote
3) Shareholder may not vote YES on merger

Question 39

termination of corp

Answer 39

1) Dissolution
2) winding up affairs of business (sells assets/makes distributions)
3) termination (corp ceases to exist)

Question 40

order of distribution in corp termination

Answer 40

1) creditors
2) preferred shareholder
3) common shareholder
4) other shareholders

Question 41

involuntary dissolution - proceeding brought by Dept of Legal Affiars

Answer 41

1) corp achieved charter thru fraud

2) corp engaged in a continuing pattern of abusing its authority

Question 42

involuntary dissolution - brought by shareholder

Answer 42

1) directors are deadlocked and causes injury;

2) shareholder deadlock

Question 43

involuntary dissolution - 35 or fewer shareholders

Answer 43

1) assets are being wasted, leading to injury

2) directors or those in control are acting fraudulently

Question 44

involuntary dissolution act brought by creditor

Answer 44

1) creditor has a judgment against corp and corp will be insolvent
2) corp admits it owes creditor money and will be insolvent

Question 45

foreign corp

Answer 45

1) incorporated in another state
2) must register with state of FL b/f doing business
3) cannot sue in FL courts

Question 46

C Corp

Answer 46

default corp status for tax purposes

Question 47

S corp

Answer 47

alternative to C corp
taxed like a partnership - no double taxation
no more than 100 shareholders and 1 class of stock

Question 48

LLC

Answer 48

1) member/manager typically not liable to debts of LLC
2) members share profits in proportion to their contribution
3) typically assignment of LLC interest does not give transferee right to participate in management