Corporations Flashcards
Penalties for Florida Corporations that Fail to File an Annual Report
A Florida corporation that fails to file an annual report is—
- barred from bringing or defending any action in the Florida courts until the report is filed; and
- is also subject to involuntary dissolution. 607.1622
Penalties for Foriegn Corporations Transacting Business Without Authority
- Cannot Bring Suit: A foreign corporation transacting business without authority cannot bring any action in any court in Florida, until the corporation obtains authority. However, the corporation is not barred from defending any action in Florida. 607.1502(1), (5)
- Contracts Not Impaired: The failure of a foreign corporation to obtain authority to transact business in Florida does not impair the validity of any contract or corporate act.
Articles of Incorporation:
Statutory Powers (607.0833)
To lend money to and use its credit to assist its officers and employees when such may reasonably be expected to benefit the corporation.
- Not-for-profits are prohibited from making loans to insiders.
Articles of Incorporation:
Mandatory Provisions (607.0202)
The articles must be in writing and contain the following elements:
- The name of the corporation, which must be distinguishable from all other entities authorized to do business in Florida and must contain the word “corporation,” “company,” or “incorporated,” or the abbreviation “Corp.”, “Co.,” or “Inc.,” or words or abbreviations of like import which clearly indicate it is a corporation.
- In Florida, the word “Limited” implies partnership, not a corporation. 607.0401
- If shareholders are to be given preemptive rights to acquire shares issued subsequently by the corporation, a provision setting for the extent of such rights must be included.
- In the absence of any provision in the articles, shareholders have no preemptive rights. 607.0630(1)
Liquidation Preference
On liquidation, the preferred shareholders are usually accorded the right to receive a stated value for their shares, plus any accumulated but unpaid dividends, before common shareholders receive anything on their shares.
Subscription Agreements
- A subscription agreement is a contract by which the subscriber agrees to purchase a certain number of shares of stock of the corporation at the subscription price specified in the agreement.
- The Florida statue provides that a written pre-incorporation agreement is irrevocable for six months unless it provides otherwise, or unless all of the subscribers consent to revocation.
Restrictions on Transfer of Stock
- Restrictions on sale must be reasonable.
- It is quite common in close corporations to have buy/sell agreements and agreements giving a right of first refusal on the sale of stock.
- Generally, restrictions on the sale of stock will be enforced as long as they are reasonable.
Annual Meeting
- An annual meeting of the shareholders is held (at a time stated in, or fixed in accordance with, the bylaws) for the election of directors and such other business as may be necessary or appropriate.
- If the annual meeting is not held within any 13 month period, any shareholder may apply to the court for an order requiring the meeting to be held. 607.0703
Shareholders:
Proxies
- Every shareholder entitled to vote, or express consent or dissent, may authorize another person to act for him by written proxy.
- A shareholder (or the shareholder’s properly appointed agent) may appoint a proxy by signing an appointment form or by transmitting a telegram or other electronic communication.
- Under the Florida statute, proxies expire after 11 month unless otherwise expressly provided.
- Proxies are revocable at the pleasure of the shareholder unless the proxy provides it is irrevocable and the proxy holder has an interest in the shares, such as a pledgee, purchaser, or employee.
- A proxy may be revoked, even if otherwise irrevocable, by a bona fide purchaser of the shares without notice of the proxy. 607.07022.
- Death of the shareholder does not revoke the proxy.
Cumulative Voting
The articles may provide for cumulative voting, which is intended to aid minority shareholders in obtaining some representation on the board of directors.
- Example: A owns 100 voting shares, and 3 directors are to be elected. A is entitled to 300 votes (100 shares x 3 directors) and he may cast all 300 votes for the same candidate or spread them among any number of candidates.
Legality of Dividend Payment
The Florida statute sets forth two standards (solvency tests) for payment of dividends, both of which must be met in every instance (607.06401):
- Equity/Cash Flow Test - A dividend is permissible only if—after giving it effect—the corporation will be able to pay its debts as they become due in the usual course of business.
- Bankruptcy/Balance Sheet Test - Dividends are limited to the amount by which total assets of the corporation exceed the sum of total liabilities and the liquidation preferences of preferred shares.
Shareholders: Records Available for Inspection
Assuming for proper purpose, any shareholder may inspect and copy the following records of the corporation:
- minutes of any meeting of the board, and records of any action of a committee of the board while acting in place of the board;
- accounting records of the corporation;
- the record of shareholders; and
- any other books and records.
Shareholders:
Proper Purposes for Inspection of Records
Any shareholder may inspect and copy certain records of the corporation if—
- he gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy;
- his demand is made in good faith and for a proper purpose;
- he describes with reasonable particularity his purpose and the records he desires to inspect; and
- the records are directly connected with his purpose.
Appraisal Rights Availability
Appraisal rights are not available for holders of any class or series of shares that—
- are traded on a national securities exchange (on the theory that the shareholder is adequately protected by his ability to sell his stock at the market prices); or
- has at least 2,000 shareholders and the outstanding shares of the class or series have a market value of at least $10 million (excluding the value of shares held by subsidiaries, senior executives, directors, and beneficial shareholders owning more than 10% of such shares).
Dismissal of Derivative Suit by Corporation
On motion by the corporation, the court may dismiss a derivative proceeding if the court finds that one of the following groups has made a good faith determination, after conducting a reasonable investigation, that maintenance of the derivative suit is not in the best interest of the corporation:
- majority vote of—
- independent directors present, if the independent directors constitute a quorum;
- a committee consisting of two or more independent directors appointed by majority vote of the independent directors;
- a panel of one or more individual persons appointed by the court upon motion of the corporation. 607.07401(3)
Proper Time and Place of Director Meetings
- Director meetings may be held within or outside of the state.
- Special meetings may be called by the chairman of the board or the president unless otherwise provided in the articles or bylaws. 607.0820
Validity of Phone Conference Director Meetings
The Florida statute expressly provides that directors may participate in a meeting by means of conference telephone (or similar communications equipment) and that such participation constitutes personal presence (quorum) at the meeting. 607.0820(4).
Notice of Director Meetings
- Director meetings need not be formal and no notice of regular meetings is required.
- Unless otherwise provided in the bylaws, written notice of special meetings must be given at least two days before the meeting.
- Shareholder meetings are always 10 days, regardless.
- The notice may be delivered by mail or personally and need not specify the purpose of the meeting. 607.0141, .0822
Quorum for Director Meetings
Unless the articles or bylaws require a greater number, a majority of the total number of directors authorized (counting vacancies as absent) is necessary to constitute a quorum. 607.0824(1).
- A director who participated by conference telephone is deemed present.
- The articles of incorporation can establish a smaller quorum size, but it must be at least 1/3 of the authorized directors.
- Once a quorum is established, it does not cease to exist if people leave the meeting.
Compensation of Directors
Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors.
Liquidation and Dissolution:
Involuntarily by Judicial Order
- A Florida corporation may be liquidated and dissolved involuntarily under judicial supervision.
- The courts have full power to liquidate the assets and business of a corporation in an action by a shareholder when there is either—
- a deadlock in which the—
- directors are deadlocked in the management of corporate affairs,
- shareholders are unable to breach the deadlock, and
- corporation is suffering threatened with irreparable injury; or
- the shareholders—
- are deadlocked in voting power and
- have failed to elect successors to directors whose terms have expired, etc.
- a deadlock in which the—
Not-For-Profit Corporations
The provisions to be set fort in the articles of incorporation are substantially the same as those for corporations for profit except the articles must set forth the purpose or purposes for which the corporation is organized. 617.0202
Not-For-Profit Corporations:
Directors
A board of directors must consist of three or more individuals, with the number specified in, or fixed in accordance with, the articles of incorporation or the bylaws.
Not-For-Profit Corporations:
Loans to Directors or Officers
Loans may not be made by a not for profit corporation to its directors or officers, or to any other entity in which one or more of its directors or officers is a director or officer or holds substantial interest, except loans “between certain corporations exempt from federal income taxation.” (i.e., other nonprofits that are serving as board members) 617. 0833
