Corporations Flashcards
nature of a corporation entity
a corp is a separate legal entity from its shareholders; it generally may exercise through its agents the same rights and privileges of a natural person.
Subchapter S corporations
enables small businesses to get around double taxation; taxes corporation income directly to the shareholders in proportion to their ownership
obligations of corporation to the state
file an annual report with the department of state or may be involuntarily dissolved, cannot bring or defend an action in state courts unless report is filed; must maintain a registered office and agent in the state; may be required to provide other information such as the identity of ultimate equitable owners
corporate powers in general
broad statutory powers are conferred upon all corporations to allow them to carry out their purposes; powers may be expanded or limited by the articles of the corporation such as power to hold property, borrow money, lend money (except to outside directors), hold and vote securities, indemnify agents, and donate to charity
corporations and political contributions
corporations may contribute to candidates within limits for state or local office; otherwise as free as individuals to expend funds to support or oppose ballots referendums or candidates for political office, as long as the spending is independent of a candidate. cannot donate to federal office candidates.
liabilities
corporations are liable for contracts and for torts committed by their agents; may be liable for punitive damages if an agent engages in intentional misconduct or is grossly negligent and the corporation participates or condones or is itself grossly negligent
ultra vires doctrine
acts beyond the power of the corporation conferred by law or its charter; a shareholder derivative suit may be brought to enjoin performance of a specific ultra vires executory contract; the corporation may bring suit against officers or directors to recover damages from a past ultra vires act that damaged the corporation. -at common law a corp could use an ultra vires defense to get out of a K, but because corporate powers are so broad, you should not find an ultra vires act unless the articles restrict the powers; very limited defense.
incorporators
can be natural persons, corporations, partnerships, or associations
what are the articles of incorporation?
they constitute the agreement among the incorporators regarding the details of the corporation’s organization
articles of incorporation must state (7):
the corporations name, which must indicate the corporation status; the number of shares and distinguishing characteristics of each class of shares; whether shareholders have preemptive rights (if not stated, they have none); the address of the initial registered office; the name of the initial registered agent together with the agent’s written acceptance; the names and addresses of the incorporators; and the address of the principal office
articles of incorporations may include:
the number of directors constituting the initial board, and their names and addresses; the par value of stock, or a statement that there is no par value; the imposition of personal liability on shareholders to a specific extent and on specific conditions; the initial purposes, which may include any lawful business; any other provision not inconsistent with law, regarding managing the business or powers
corporate filing procedure
incorporator sends the articles to the department of the state, which files them if all legal requirements are met. Corporate existence begins upon filing.
Who of the following is afforded the least priority following the voluntary dissolution of a corporation?
A. A shareholder who owned preferred stock.
B. A corporate officer who loaned money to the corporation.
C. An employee who is owed wages.
D. An unsecured creditor of the corporation.
Answer choice A is correct. Generally, shareholders of a corporation are last in line with respect to a dissolution distribution. Creditors of a dissolved corporation are entitled to have their valid claims honored before the shareholders receive a distribution. This even applies to a shareholder who holds preferred stock. The owner of preferred stock can be entitled to receive a distribution before the owner of common stock, but such preference does not apply with regard to claims of creditors of the corporation. Answer choice B is incorrect because a lender, including one who served a corporate office, has priority over a shareholder. Answer choice C is incorrect because an employee, as a creditor of the corporation for unpaid wages, has priority over any shareholder. Answer choice D is incorrect because even an unsecured creditor of a corporation has priority over a shareholder—even a shareholder who owns preferred stock—to a dissolution distribution.
Which of the following statements regarding short-swing profits is true?
A. An insider who does not possess non-public material information need not return short-swing profits.
B. Only publicly traded corporations are protected by Section 16(b) actions.
C. Only corporate directors and officers are subject to return short-swing profits.
D. Transactions made after ceasing to be a corporate insider are not considered in determining short-swing profits.
Answer choice B is correct. Only publicly traded corporations that (i) have securities traded on a national securities exchange or (ii) have assets of more than $10 million and more than 500 shareholders of any class of stock or other equity security are subject to Section 16(b) provisions. Answer choice A is incorrect because an insider’s reasons for trading are immaterial; even an insider who does not possess insider information has to return short-swing profits. Answer choice C is incorrect because shareholders who hold more than 10 percent of any class of stock are also subject to Section 16(b) actions. Answer choice D is incorrect because transactions made after ceasing to be a corporate insider are considered in determining short-swing profits; transactions made before becoming a corporate insider are not generally considered.
Which of the following statements regarding involuntary dissolution is true?
A. A creditor may pursue judicial dissolution of a corporation if corporate assets are being misapplied or wasted.
B. Florida statutes lay out a distribution scheme for assets of an involuntarily dissolved corporation that are different from that of a corporation that was voluntarily dissolved.
C. The court must acquire a majority approval of either the shareholders or the board of directors to dissolve the corporation.
D. A shareholder may pursue judicial dissolution if the directors are acting illegally, oppressively, or fraudulently.
Answer choice D is correct. One of the four times a shareholder may pursue the involuntary dissolution of a corporation is if the directors are acting illegally, oppressively, or fraudulently. Answer choice A is incorrect because it describes one of the other situations in which a shareholder can seek judicial dissolution of a corporation. A creditor may only seek judicial dissolution in Florida if the corporation is insolvent. Answer choice B is incorrect because distributions of the assets of a corporation that has been involuntarily dissolved are basically the same as ones that have been voluntarily dissolved, unless equity requires otherwise. Answer choice C is incorrect because neither is required; a court may dissolve the corporation upon the petitioner’s establishment of the necessary grounds.