Corporations

Question 1

PROMOTER

Answer 1

• A PROMOTER of a corporation is someone who collects whatever is necessary for the business to get up and running and files the documents with the state. • A promoter is PERSONALLY liable for acting on behalf of a corporation IF he acts with knowledge that there was no incorporation.

Question 2

PRE-INCORP TRANSACTION LIABILITY

Answer 2

A promoter is PERSONALLY liable for acting on behalf of a corporation IF he acts with knowledge that there was no incorporation. A corporation IS NOT liable for pre-incorporation transactions UNLESS: 1: Corporation RATIFIED the transactions that the promoter entered into (i.e., adopt the contract by accepting the benefits or by express acceptance of liability). or 2: NOVATION occurs (the parties replace the old contract with a new contract that makes the corporation liable).

Question 3

INCORPORATION : Filing

Answer 3

o To form a corporation, the incorporators must file the ARTICLES of incorporation with the Department of State. o The NAME of a corporation may be reserved for a 120 DAYS period before incorporation.

Question 4

INCORPORATION : REQ Info

Answer 4

The articles of incorporation must include: 1) NAME of the corporation 2) NUMBER of authorized shares 3) NUMBER of Directors (min 1)

Question 5

Corporate Name

Answer 5

 Must contain one of three specific words: - corporation - company - incorporated

Question 6

Articles : Number of Authorized Shares

Answer 6

The number cannot be based on facts outside the articles. Example 11: A provision like “as many shares as will be necessary to help raise money for the company” would not be allowed.

Question 7

Articles of Inc : Permissive Info

Answer 7

 The corporation’s purpose. Often simply “to engage in any lawful business/activity”  A list of the corporation’s DIRECTORS  The “PAR value” of the corporation’s shares (i.e., the share price below which the corporation cannot issue the shares)  The DURATION (or lifetime) of the corporation; if none is stated, the corporation’s lifetime is perpetual.  Exclusive FORUM SELECTION provisions for INTERNAL corporate claims • >> Can specify more than one court as long as one is in Florida and as long the corporation has a SUBSTANTIAL relationship with the other jurisdiction(s)

Question 8

Articles of Inc : Restricted Language

Answer 8

The articles of incorporation MAY NOT include a provision that > would impose LIABILITY on a SHAREHOLDER > for attorney’s FEES or EXPENSE > of the corporation in connection with an INTERNAL corporate claim (but private agreements, outside the articles or bylaws, can include such terms).

Question 9

Articles of Inc : Effective Date

Answer 9

1) Date Filed 2) Date specified up to 5 days prior or 90 days after

Question 10

Remedies for Ultra Vires Corporate Action

Answer 10

1) In a STATE action, a court may - DISSOLVE the corporation or - ENJOIN the action. 2) In a SHAREHOLDER lawsuit, the court may - issue an injunction enjoining the action or - award DAMAGES other than anticipated profits

Question 11

Amendment of Bylaws

Answer 11

May be amended by BOARD UNLESS articles restrict power to SHAREHOLDERS

Question 12

Hierarchy of Laws

Answer 12

IF >by laws contradict the articles THEN >articles govern IF > articles contradict the statute THEN >statute governs

Question 13

Failure to File Annual Report

Answer 13

1) may be dissolved 2) cannot sue or defend lawsuit until report filed

Question 14

Default Voting Power Shares

Answer 14

EQUAL POWER and EQUAL right to receives assets upon dissolution

Question 15

Min Req Stock Rights

Answer 15

At least one class or series of shares MUST have: 1) final voting power 2) Ability to receive the NET ASSETS upon dissolution

Question 16

Stock Subscription

Answer 16

MUST 1) be in WRITING 2) SIGNED by subscribers A pre-incorporation subscription for shares is by default irrevocable for SIX (6) MONTHS. >>EXCEPTIONS: • Parties can agree to a different period; or • Subscribers can UNANIMOUSLY release each other. IF a subscriber DEFAULTS, the CORP has the RIGHT to: 1) Try to COLLECT what the subscriber promised to contribute; or 2) Sell the SHARES to someone else and recover the difference in damages.

Question 17

Distribution Authority and Restrictions

Answer 17

DIRECTORS can authorize distributions, subject to ARTICLES AND STATUTORY RESTRICTIONS: EQUITY TEST = LIQUIDITIY >>To issue DIVIDENDS, a corporation must be able to pay off its DEBTS as they come due in the USUAL course of business. BALANCE SHEET = ASSETS > LIABILITIES + PREF RIGHTS >> To issue DIVIDENDS, a corporation’s total ASSETS must exceed its total LIABILITIES plus (unless the articles provide otherwise) an amount sufficient to satisfy preferred rights of other securities.

Question 18

Permitted Restrictions on SH Sale of Stock

Answer 18

 Articles of INC;  Bylaws;  Private agreements among SHAREHOLDERS;  Agreement between shareholders and the corporation. THIRD parties (e.g., buyers) ARE NOT bound by transfer restrictions unless they are AWARE of them. >>Restrictions PRINTED on a stock CERTIFICATE may provide CONSTRUCTIVE notice.

Question 19

SH MEETINGS : REQ ANNUAL

Answer 19

A main purpose of the meeting to is elect DIRECTORS; IF >> directors are elected by WRITTEN CONSENT, no shareholder meeting is necessary. o Shareholders may seek a court order to compel a shareholder meeting if the annual meeting has not been held in FIFTEEN (15) MONTHS.

Question 20

SH MEETING : NOTICE

Answer 20

NOTICE TIME - Regular Meeting - Shareholders generally must receive between 10 and 60 days’ notice before a meeting. Special Meeting - TWO (2) dates WAIVER - Shareholders may waive notice by: ATTENDING OR by sending a written confirmation that they had notice.

Question 21

SPECIAL SH MEETING

Answer 21

MAY BE CALLED BY: 1) the board of directors or 2) shareholders who own TEN (10%) of the VOTING shares Special meetings may not go beyond the purposes noticed for the special meeting.

Question 22

SH VOTING: Quorum

Answer 22

DEFAULT QUORUM = FIFTY (50%) is necessary before a vote may be taken at a meeting of the NUMBER of directors in ARTICLES regardless of number actually serving. The ARTICLES of incorporation MAY INCREASE the quorum requirement to any level. The articles of incorporation MAY NOT DECREASE the quorum requirement BELOW 1/3 (33%)

Question 23

SH VOTING : Straight vs Cumulative

Answer 23

Voting for DIRECTORS by default occurs by STRAIGHT voting. >> With straight voting, a majority shareholder, or one who has more votes than any other single voting shareholder, can win every seat on the board. ARTICLES may specify CUMULATIVE VOTING >> Under cumulative voting, shareholders can pool or focus their votes on some of the board seats, thereby winning those seats.

Question 24

SH VOTING : Vote Pooling Agreements

Answer 24

MUST: 1) be in WRITING 2) NO maximum limit

Question 25

Shareholder Management Agreements

Answer 25

Shareholders MAY UNANIMOUSLY enter into agreements that radically change the corporate structure. They CAN: 1) ELIMINATE the board of directors 2) LIMIT the powers of the board of DIRECTORS 3) Permit one SHAREHOLDER, or any group of them, to EXERCISE corporate powers 4) Impose LIABILITY on a SHAREHOLDER for the attorney’s FEES or EXPENSES of the corporation (even though the articles and bylaws cannot do this)

Question 26

SH INSPECTION RIGHTS

Answer 26

Shareholders MAY inspect corporate records IF their PURPOSE is to do anything that RELATES to their SH INTEREST. The corporation MAY charge the shareholder REASONABLE fees. Shareholders MUST give at least FIVE (5) DAYS notice. Inspection is LIMITED to REGULAR business HOURS at the corporation’s MAIN OFFICE. If the corporation refuses inspection, a court may summarily inspection or order inspection on an expedited basis.

Question 27

SH LAWSUITS

Answer 27

DIRECT AND DERIVATIVE

Question 28

SH DIRECT LAWSUIT

Answer 28

Suit by shareholders AGAINST the CORPORATION in their own right. UNLESS contractual or statutory violation, Shareholders MUST SHOW BOTH 1) DIRECT HARM (versus a harm they suffer because the corporation is harmed) AND 2) SEPARATE INJURY (separate and distinct from harms to other shareholders).

Question 29

SH DERIVATIVE SUIT

Answer 29

PRIOR TO FILING > SH MUST OWN shares: 1) at the TIME of the lawsuit >AND 2) at the TIME of the wrong occurs SH MUST: 1) make DEMAND on the corporation, OR 2) demonstrate demand would be FUTILE, OR 3) Delay would lead to IRREPARABLE HARM

Question 30

A corporation must maintain the following records :

Answer 30

• currently effective articles of incorporation and bylaws,
• its most recent annual report filed with the department,
• all written communications with shareholders within the past three years,
• names and addresses of its current directors and officers,
• the most recent annual report, and
• the minutes of all meetings,
• records of all actions taken without a meeting by the shareholders, the board of directors, and any board committees.
• record of its current shareholders organized alphabetically by class or series of shares
• annual financial statements for the past three fiscal years.

Question 31

Notice given to or by a corporation must :

Answer 31

be in writing, which includes electronic transmission,

unless oral notice is

• expressly authorized by the articles or the bylaws
• and
• is reasonable under the circumstances.

The notice must be in English unless the sender and the recipient agree otherwise.

Question 32

The issuance of stock may be authorized by :

Answer 32

• the board of directors,
• or if the articles provide, the shareholders.

Question 33

What constitutes consideration for stock?

Answer 33

• Any tangible or intangible property (e.g.,
  
  • cash,
  • promissory note,
  • other securities of the corporation)
• a benefit to the corporation
  
  • (e.g., services previously rendered,
  • promise to perform services evidenced by a written contract,
  • forgiveness of an existing debt)

Question 34

What is the SOL to recover unpaid amount for stock?

Answer 34

There is a five-year limitation on an action to recover from a shareholder, commencing on the date of the issuance of the shares or the date of the subscription. FBCA607.0621(5), 607.0622(1).

Question 35

If a Florida corporation does provide preemptive rights, the following statutory principles apply :

(unless articles state otherwise)

Answer 35

i) Preemptive rights are granted on uniform terms;
ii) A shareholder may waive his preemptive rights, and if a waiver is in writing, it is irrevocable;
iii) There is no preemptive right with respect to (i) shares issued as compensation to directors, officers, agents, or employees of the corporation, (ii) shares issued to satisfy option rights created to provide compensation to directors, officers, agents, or employees of the corporation, (iii) shares authorized in the articles and issued within six months of incorporation, (iv) shares issued pursuant to a court-approved reorganization, or (v) shares issued for consideration other than money;
iv) Holders of shares with no voting rights but with preferential rights to distributions or assets upon dissolution have no preemptive rights to shares; and
v) Holders of shares with voting rights but no preferential rights have no preemptive rights with respect to shares with preferential rights.