Corporations Flashcards
Promoter
someone who collects whatever is necessary for the business to get up and running
Corporate liability for pre-incorporation transactions; exception
Not liable, except if corporation RATIFIES transactions that the promoter entered into
Articles of Incorporation: Required info
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
Defective Incorporation
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
Corporate Purpose
A FL corp’s purpose is to engage in any or all lawful business; articles of incorporation can narrow corp’s purpose
Ultra Vires acts
when corp acts outsides its stated purpose
Recourse for ultra vires acts
1) Shareholder may sue to enjoin corp’s acts
2) corp can sue (eg injunction on managers)
3) State can sue
When can a court uphold a challenge for ultra vires acts?
1) when it is equitable to strike down the ultra vires act
2) All affected parties are joined in the suit
Which parties receive damages in a suit against a corp for ultra vires acts?
1) Both corp and 3rd parties dealing with corp
2) Damages may not include anticipated profits
FL Corporation income tax
5.5%, after exemption of $25K income
Annual Report
must be filed annually or corp may be dissolved
Stocks
Corps must have stocks
stocks are divided into different classes
Two rights that each one class of stock must have in a corp
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
Who issues shares in a corporation?
1) Board of directors
2) Shareholders with authorization from articles of incorporation
Pre-incorporation subscription of shares - irrevocable for how long?
6 months
Distribution
transfer by the corp to the shareholders of money or profit
A corp may not issue distributions if:
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
Priority stock shares
have priority over common stock shares in the receipt of distribution
Priority of claims upon liquidation of the company
1) creditors
2) preferred shareholders
3) common shareholders
Who can call an special shareholder meeting?
1) directors
2) shareholders with 10% of outstanding shares
By default, what is the quorum required for shareholder meeting?
50%
how can quorum requirement be increased? decreased?
increased via Articles of Incorporation; cannot be decreased
Shareholders w/ 100 or fewer shareholders may unanimously enter into agreement that:
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
Shareholder Suits (2 types)
1) direct
2) derivative
Requirements for derivative suit
1) shareholder must make demand on the board, UNLESS demand would be futile or delay would lead to irreparable injury
When may plaintiff shareholder in a derivative action seek reimbursement from the corp for litigation expenses?
when corp recovers substantial benefit
when may a corp that is a defendant in a derivative action seek reimbursement from plaintiff for litigation expenses?
1) when shareholder uses suit for improper purpose (subjective)
2) no reasonable cause (objective)
Shareholders duties to one another
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
Who determines how directors are paid?
directors
committees
established by director
committees have at least 2 members
board may remove committee member(s) at will
business judgment rule
defense;
However, director liable for breach of care if:
1) consciously disregarded the interests of the corp OR
2) otherwise engaged in willful misconduct
self-dealing
1) violates duty of loyalty
Directorial conflict of interest
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
Indeminfication
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
Long form merger, requirements
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
short term merger
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.
Asset acquisition sale- who approves
1) directors and shareholders must approve the sale
objection to the merger
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
termination of corp
1) Dissolution
2) winding up affairs of business (sells assets/makes distributions)
3) termination (corp ceases to exist)
order of distribution in corp termination
1) creditors
2) preferred shareholder
3) common shareholder
4) other shareholders
involuntary dissolution - proceeding brought by Dept of Legal Affiars
1) corp achieved charter thru fraud
2) corp engaged in a continuing pattern of abusing its authority
involuntary dissolution - brought by shareholder
1) directors are deadlocked and causes injury;
2) shareholder deadlock
involuntary dissolution - 35 or fewer shareholders
1) assets are being wasted, leading to injury
2) directors or those in control are acting fraudulently
involuntary dissolution act brought by creditor
1) creditor has a judgment against corp and corp will be insolvent
2) corp admits it owes creditor money and will be insolvent
foreign corp
1) incorporated in another state
2) must register with state of FL b/f doing business
3) cannot sue in FL courts
C Corp
default corp status for tax purposes
S corp
alternative to C corp taxed like a partnership - no double taxation no more than 100 shareholders and 1 class of stock
LLC
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
