FL Corporations Flashcards
Corporations Roadmap
- Corporate Form
- Forming the Corp
- Financing the Corp
- Preincorporation Transactions
- Management of the Corp’s Affairs
- Responsibilities and Duties of Corporate Directors and Officers
- Shareholders
- Fiduciary Obligations of Shareholders
- Securities Fraud and Insider Trading
- Fundamental Corp Changes
- Tender Offers and Takeover Defenses
- Dissolution and Liquidation
- Foreign Corps
- Not-For-Profit Corps
Corporation Defined
= a legal entity separate and distinct from its owners (the shareholders), with its own rights and obligations.
- Free transferability: Shares can be transferred.
- Perpetual existence: No fixed date of termination or dissolution, unless otherwise stated in the articles of incorp.
- Centralized management: Decision-making powers are vested with the corp’s board of directors.
- Limited liability: Each sharehlder is liable only for the amount of his/her investment*.
Taxation (C-Corp vs. S-Corp)
- Corps are taxed as an entity (EXCEPT FOR S-CORPS)
- Shareholders are also taxed on any distributions from the corp (double taxation).
C-Corporations: = Corps that do not elect otherwise (i.e. check the box.) For tax purposes, all corps are formed as C-Corps.
* Taxed as entities.
* Ex. C-Corp’s net income was $300 million. There are 100 shareholders, each of whom made $5,000 in dividends. C-Copr must pay state and fed income taxes on the full $300 million, and each shareholder must pay an additional tax on the $5,000 received.
S-Corporations: = a corp that meets certain criteria may elect to be taxed as an S-Corp.
* An S-Corp is taxed as a partnership.
* The corp itself pays no taxes on its income; all income is deemed to be earned by its shareholders.
** Shareholders, based on the number of shares owned, pay a proportional amount of the corp’s income. **
* Ex. S-Corp has a profit of $100,000. The corp has 4 shareholders, each who hold 25% of the shares. Each shareholder must include an additional $25,000 on his personal income tax return, representing his share of the corp’s profit.
S-Corp Qualifications
To qualify to elect s-corp status, the corp must:
1. Be closely held (i.e. not publically held);
2. Have no more than 100 individual shareholders who are nonresident aliens; and
3. Not have issued more than one class of stock (except for classes of common stock that differ only in voting rights.)
Powers of a Corporation
A corporation has the power to:
1. Sue and be sued;
2. Purchase, own, lease, mortgage, and sell real or personal property or any interest therein;
3. Lend money or use their credit to assist officers, directors, or employees;
4. Purchase or sell any interest or obligations in any other entity;
5. Enter into contracts, incur liability, borrow money, and issue notes, bonds, etc.;
6. Conduct business and locate offices within or outside Florida;
7. Elect directors and appoint officers, employees, and agents of the corp and define their duties and compensation, and loan them money;
8. Make and amend bylaws;
9. Make charitable donations;
10. Provide life insurance for directors and employees;
11. Etc.
Ultra Vires Acts
= lack of power to act.
* The board of directors is NOT permitted to undertake any ultra vires acts, or acts that are beyond the corporation’s authority or beyond limitations as set forth in the articles of incorporation.
* Neither the corp nor the other party to a contract with the corp can maintain an ultra vires defense
** EXCEPTION: **The defense can be used if one contracting party knew or should have known that the transaction exceeded the corp’s authority.
How to Serve Process on a Corp
- Can be served via its registered agent;
- If no registered agent or agent cannot be located, can serve the chair of the board, the president, ANY vice president, secretary, or treasurer of the corp at the principal office of the corp in Florida.
Forming a Corporation
(+ Requirements of Articles of Incorporation)
- A corp is created by delivering a properly completed set of articles of incorporation to the Secretary of State, along with the required filing fee.
** Articles of Incorporation MUST include the following:**
1. The corp’s name; must be unique and contain the word corp, incorporated, or Inc.
2. Corp’s street and mailing address;
3. Number of shares the corp is authorize to issue, or authorized shares;
4. Street address of the corp’s initial registered office and name of its registered agent; and
5. The name and address of each incorporator. - Organizational Meeting: After incorporation, the initial directors MUSThold an organizational meeting to appoint officers (or naming directors ) and adopting bylaws.
Bylaws
- Must be consistent with the articles of incorporation and FL and Fed law.
- Unless the Articles provide otherwise, the Board of Directors has the right to alter, amend or repeal the bylaws WITHOUT SHAREHOLDER APPROVAL, although any alteration is subject to repeal or change by shareholder action.
De Jure Corps
= a properly formed corporation.
* May also exist where there has been substantial, but not incomplete, compliance with the statutory requirements for formation.
* In most cases, Articles of Incorporation must have been filed for there to be a de jure corp.
De Facto Corps
Exists when there has been a good faith attempt to comply with the statutory requirements for formation, AND there has been some actual use of the purported corporate existence, such as carrying on business openly as a corp.
NOTE: Differ from a de jure corporation because no articles of incorp. were filed.
Corporations by Estoppel
- Persons acting on behalf of the corporation under the mistaken assumption or belief that a corporation has been formed have NO PERSONAL LIABILITY.
-
When neither de jure, de facto, or corp. by estoppel, there will be personal liability against those who:
1. Participated in the management of the corp and
2. Had actual knowledge that there was no incorporation.
Piercing the Corporate Veil
Despite adequate formation, a court will hold individual shareholder’s personally liable for corporate obligations when necessary to prevent fraud or misconduct.
3 Requirements:
1. Alter Ego: The shareholder controlled the corp to such an extent that the corporation’s independent existence was in fact nonexistent and the shareholder was in fact the alter ego of the corp;
2. Improper Conduct: The corporation must have been used fraudulently or for an improper purpose; AND
3. Proximate Cause: The fraudulent or improper use of the corporate form caused injury to the claimant.
What must the articles of incorporation state about stocks?
(MEMORIZE)
- Set forth the classes of equity securities and series of shares within a class the corp is authorized to issue;
- Set forth the number of shares of each class and series, as well as the rights, preferences, privileges and limitations of each class r series of securitiesauthorized to issue;
- Designate at least one class or series:
* with unlimited voting rights, and
* entitled to receive the corp’s net assets on dissolution.
Common Stock
The holders of common stock are the owners of the corporation.
* Common stock holders have the right to vote for directors and on any other matters put to them for a vote by the board of directors.
Equity Securities
= shares of stock.
* Shareholders are paid only after all other creditors have been paid.
* Articles of Incorp. must state the classes of equity stock and series of shares within the classes that a corp. is authorized to issue, as well as the number of shares of each class and series, as well as rights, privileges, preferences and limitations.
Preferred Stock
(Definition + 5 Types Listed)
= a class of equity stock with rights to distribution of dividends or assets preferential to those assigned to common shares.
* Upon liquidation of the corp preferred stock holders receive their proportional amount before common stock holders.
* Typically do not have voting rights; the preferential treatment refers to money, not a voice in the corp’s operation.
* 5 Types of Preferred Stock:
1. Staight Preferred Stock (Most Common)
2. Participating Preferred Stock (Preferred + bonus)
3. Cumulative Preferred Stock (Straight Preferred + can collect dividends from past years that wasnt issued by corp)
4. Convertable Preferred Stock: Option to convert into cmmon stock or bonds
5. Redeemable Preferred Stock: Can be cashed in at the option of the corp or stock holder at the predetermined amount.
Par Value
= the value of a single common share as set by the corporation’s articles.
* It is not typically related to the actual value of the shares; in fact, it is often lower.
* Serves no purpose other than to set the floor price value for the issuance of shares.
* NP REQUIREMENT IN FLORIDA THAT A PAR VALUE BE SET.
Watered Stock
= any stock issued by a corporation to someone in exchange for assets that under-compensate for the stock.
* Example: Corp issues 1,000 shares of stock to Sam for $10,000 even though the stock’s fair market value is $15,000.
* Corps may NOT recover the difference between the amount paid and the actual value of the stock UNLESS the shares were issued via a beach of fiduciary duty.
* Ex. Sam’s aunt is the president of Corp and issued the stock to Sam. Because the shares were obtained via a breach of fiduciary duty, Corp can recover the $5,000 difference.
* NOTE: Individual shareholders cannot recover the difference because the action lies with the corp.
Dividends
= Distributions issued by the corp, either in the form of cash or property, to its shareholders in proportion to their shares owned.
* One issued, shareholder becomes a creditor. Corp CANNOT revoke a dividend after being issued WITHOUT SHAREHOLDER CONSENT.
* Unless otherwise provided in the articles, the decision to issue dividends lies with the board of directors.
* CANNOT be compelled to issue dividends by shareholders (since they have no right to dividends) UNLESS the director’s refusal to do so was in bad faith.
* Directors CANNOT issue dividends that would cause the corp to become insolvent.
* Generally, dividends can only be paid out of a corp’s surplus.
* Surplus = The difference between a corp’s net assets (total assets - liabilities) and its stated capital (stated value of the corp’s stock x its outstanding shares).
Record Date
The board of directors may fix a record date for determining which sharehlders are entitled to a dividend.
* Date cannot be retroactive.
* If no record date is fixed, the record date defaults to the date that the board authorized the distribution.
Federal Registration
- Corp can sell up to $5 million in restricted securities in any 12-month period without federal registration.
- No general advertising or solicitation is allowed.
- Offering can be sold to no more than 35 investors.
FL Law Registration
= All offerors of securities in FL must file with the Florida Securities Commission a document similar to the SEC filing.
Promoters
= a person who, prior to incorporation, prepares the corporation for commencing business and supervises compliance with the requisites necessary for it to come into existence.
* Prior to existence, promoters are in fact partners.
* They owe a fiduciary duty to full disclosure to the corp and CANNOT partake in self-dealing to the detriment to the corp.
* A corporation is not liable for contracts enrered into on its behalf by promoters prior to incorporation unless the corp expressly or impliedly ratifies it after formation.
* If not ratified, the promoter is personally liable for the contract.
* NOTE: IN Florida, corps DO NOT automatically become a party to a contract upon ratification. UST be a novation.