FL Corporations

Question 1

FL

Nature of Corporate Entity

Answer 1

A corporation is a separate legal entity distinct from its shareholders.

May exercise through its agents the same rights and privileges as a natural person.

Lasts as long as you pay your annual report fees - perpetual existence.

Question 2

FL

Advantages of a corporation

Answer 2

Advantages of being a corporation:
1) Limited liability of shareholders for corporate obligations
2) Centralized management
3) Continuity of existence
4) Ease of transferring ownership
5) Access to capital through the sale of shares

Question 3

FL

Taxation of a corporation

Answer 3

Double Taxation: Corporation earnings paid to shareholders are taxed twice:
1) As income to corporation and
2) As income to shareholder.

Small corporations can avoid double taxation by electing taxation under Subchapter S of IRS Code (taxes corporation income directly to shareholder in proportion to their ownership)

Registering as an S corporation instead of a C corporation.

Question 4

FL

Corporations obligations to state

Answer 4

Corporations in FL must file annual report to the state disclosing:
1) Corporation’s name and state/county of incorporation
2) Date of incorporation, or if a foreign corporation, the date admitted to do business in the state.
3) Address of principal office and mailing address of corporation
4) Federal employer ID number
5) Names and business street addresses of its principal officers and directors
6) Street address of its registered office and name of registered agent

• If corporation fails to comply, cannot bring action in FL until report is filed and may be involuntarily dissolved.

State can request additional information.

Corporations must maintain registered office and agent in FL.

Question 5

FL

Formation of Corporation: Incorporators

Answer 5

1 or more natural persons or any entity may act as incorporator.

No other age, citizenship requirements

Question 6

FL

Articles of Incorporation

Answer 6

Agreement between incorporators about details of corporation’s organization, they MUST state:
1) Corporation’s name (indicating corporation status)
2) Number of shares authorized and the distinguishing characteristics of each class or series.
- Preferred stock (receives dividends first or larger dibs) (no voting)
- Common stock (vote)
3) Address of registered office
4) Name of registered agent and their written acceptance
5) Name/addresses of incorporators
6) Address of principal office
7) Preemptive rights – if any
- Whenever corporation issues additional shares, it gives existing shareholders the right (but not the obligation) to purchase their proportionate share of the new issuance of shares in order to maintain their percentage interest.

Agreement between incorporators about details of corporation’s organization can include:
1) Anything not inconsistent with FL statutes
2) Number of directors
3) Par value of stock (baseline amount - corporation can never sell for less than this amount)
4) Imposition of personal liability on shareholders with extents/conditions
5) Any other provision

Agreement between incorporators about details of corporation’s organization CANNOT include:
1) Provisions imposing liability on a shareholder for atty’s fees or expenses related to a corporate claim.

Question 7

FL

Procedure of making a corporation

Answer 7

Incorporators deliver article to department of state - files them.

Corporation existence begins UPON FILING.

Question 8

FL

Organizational Meeting

Answer 8

Initial directors or incorporators hold organizational meeting to complete organization.
1) Appointing officers
2) Adopting bylaws, etc.

Directors calling meeting must give at least 2-day notice to each attendee with time and place of meeting.

Can be taken without notice if written consent signed by each incorporator/director.

Question 9

FL

Bylaws

Answer 9

Incorp/board will adopt bylaws unless reserved to shareholders by articles of incorporation.

May contain any provision for managing business and regulating the affairs of the corporations that is not inconsistent with the law or article of incorporation.

Question 10

FL

De Jure Corporation

Answer 10

Formed upon substantial compliance with all mandatory requirements for incorporation.

Corporation status cannot be attacked by anyone - including the state.

Question 11

FL

De Facto Corporation

Answer 11

Formed if good faith effort to incorporate, colorable compliance with the law, and actual use of corporation status.

Not available if incorporator knew of defective formation.

Question 12

FL

Corporation by Estoppel

Answer 12

Equitable doctrine applied when persons have dealt with a defectively formed corporation as if it were legal.

Persons are estopped from avoiding Ks or attempting to hold shareholders personally liable on grounds of defective corporation status.

Not available in tort actions

Question 13

FL

Personal Liability for Defective Incorporation

Answer 13

Only if person purports to act on behalf of the corporation KNOWING that there was no valid incorporation.

No liability to 3rd person who also had knowledge that there was no valid corporation.

Question 14

FL

Promoter Liability

Answer 14

Promoter: someone who promotes creation of corporation/get investors together

Can enter into Ks before formation of corporation.

If they default/breach K’s personally liable EVEN if the doc says that corporation would be liable UNLESS novation.

Question 15

FL

Disregarding of Corporate Entity
“Piercing the corporate viel”

Answer 15

Shareholders active in the business may be held jointly and several liable as if partners.

1. Alter ego doctrine: corporation appears to be the alter ego of the shareholder and used by them to conduct personal affairs.
2. Thin capitalization: corporation must have capital adequate to meet its reasonably foreseeable needs.
3. Deep Rock Doctrine: in bankruptcy proceedings - capital contributions that are denominated as loans by shareholders of close corporations may be subordinated to debts owed to outsiders
4. Subsidiary Corporations: parent corporation may be liable for debts of a subsidiary when the subsidiary is inadequately capitalized, intermingled with the parent, or otherwise not a true distinct entity.

Question 16

FL

Powers of Corporation

Answer 16

Statutory Powers:
1. Sue and be sued in the corporations name and
2. Perpetual duration and succession in the corporations name and
3. Have a corporate seal and
4. Purchase, receive, lease, or otherwise acquire, hold, own, use, and improve real and personal property, or any legal or equitable interest in property whatever situated and
5. Sell, mortgage, convey, pledge, lease, exchange, create a security interest in, and dispose of all or any part of its property and
6. Lend money to and use its credit to assist its officers and employees when such may reasonably be expected to benefit the corporation and
7. Purchase, receive, subscribe for, or otherwise acquire, vote, own, hold, use, sell, mortgage, lend, pledge, or otherwise dispose of shares or interest in, or other obligations of, other corps, partnerships, and govts.
8. Enter into contracts, borrow money, and guarantee debts and
9. Lend, invest, and reinvest money and
10. Elect directors and appoint officers and
11. Adopt and amend bylaws and
12. Make donations and
13. Transact any lawful business in aid of governmental policy and
14. Pay pensions and
15. Enter into general or limited partnerships or joint ventures and
16. Indemnify corporation officers, directors, agents, and employees and purchase liability insurance and
17. Provide life insurance and
18. Conduct its business.

Question 17

FL

Corporation political contributions

Answer 17

• Corp may contribute within limits and
  
  • Can expend funds to support or oppose ballot referendums or a candidate for political office, as long as the spending is independent of a candidate.

Question 18

FL

Liabilities of a Corporation

Answer 18

Liable for contracts and torts committed by agents.

Punitive Damages: Corp can be held liable for punitive damages if:
1) Employee/agent or
2) Engages in intentional misconduct/grossly negligent or
3) Corp participates in or condones the conduct or is itself grossly negligent.

Question 19

FL

Corporations: - No “Ultra Vires” Doctrine

Answer 19

Ultra Vires contract is when a corporation enters a contract that is beyond its powers to act - cannot be used as a defense to enforcement.

Exceptions:
1. In a proceeding by a shareholder to enjoin the corporation’s action
2. In a direct or derivative action by the corporation against a director, officer, employee, agent or
3. In a proceeding by the Department of Legal Affairs to enjoin the corporations from unauthorized business.

Question 20

FL

Distribution to Shareholders

Answer 20

Whether to offer dividends is a matter exclusively for the board of directors

Question 21

FL

Transfer of Stock

Answer 21

Shares are generally freely transferrable.

Restrictions have to be reasonable and conspicuous - and must put it somewhere it can be read - put it on the share itself.

Total bar on transfers is unreasonable and unenforceable.

Question 22

FL

Right of First Refusal

Answer 22

before owner share can sell it, they must give corporation opportunity to buy it

Question 23

FL

Subscription agreement

Answer 23

Contract under which the subscriber agrees to purchaser a certain number of shares at a specified price.

Revocability: irrevocable for 6 months unless agreement provide otherwise, or all subscribers consent to revocation

Question 24

FL

Consideration for Shares

Answer 24

1) Cash or
2) Other property or
3) Past services or
4) Promises to perform services evidenced by a written contract or
5) Anything board of directors considers adequate.

Question 25

FL

Shareholder Liability

Answer 25

If a holder of or subscriber to shares pays less than the full consideration agreed to pay, may be liable by corporation.

Equitable Contribution: all subscribers purchasing stock at the same time should pay same price and the price for new stock issues should be adequate so as not to dilute unfairly the value of existing shareholders’ stock

Question 26

FL

Securities Laws

Answer 26

1) Nonexempt securities - registration statement must be file with the SEC disclosing all material facts.
2) Blue sky laws - impose standards governing the quality of securities sold, disclosure, anti-fraud provisions.

Question 27

FL

Preemptive Rights

Answer 27

Entitles shareholder to purchase number of shares of new stock or treasury shares being issued to maintain relative voting strength.

No right unless included in AOI.

Waiver: written waiver is irrevocable.

Question 28

FL

Repurchase of Shares

Answer 28

Corporation may acquire own shares.

By installment, the effect of distribution is measured by the earlier of:
* The date money or other property is transferred, or debt incurred by the corporation.
* The date the shareholder ceases to be a shareholder with respect to the acquired shares.
* If the Article of Incorporation prohibits reissuance of acquired shares, the number of authorized shares in reduced by the number of shares acquired.

Question 29

FL

Restrictions on Transfer of Stock

Answer 29

Restrictions will be enforced if reasonable.

Certificates must summarize on their fact any restrictions or that the corporation will furnished a full statement.

Third party buyer without notice of restrictions can compel the transfer on its book.

If third party knew of restrictions, cannot sue corporation but can sue seller.

Question 30

FL

Shareholders: Powers

Answer 30

No power – cannot run the corporation.

They can only vote on corporate proposals and board of directors.

Power can only be exercised at the Shareholder Meetings

Question 31

FL

Shareholders: Meetings

Answer 31

1. Annual Meeting :
   * Once every 13 months and
   * Notice - 10 days
2. Special Meeting
   * May be called as circumstances warrant and
   * Special Notice - 10 days

Question 32

FL

Shareholders: Voting

Answer 32

Quorum: majority number of shares entitled to vote showed up .
- No Quorum = no meeting & majority to pass things.

Shareholders can proxy their vote to someone with directions as to how to vote.

**Cumulative Voting **
When shareholders are voting for board of directors.

Straight voting: Usually # shares = # votes. You can distribute your votes as you please

BUT under cumulative voting: # of shares x number of openings at that meeting = # of votes

**Right to Dividends **
NO RIGHT TO DIVIDENDS - board of directors can elect to award dividends.

**Voting Trusts **
Shareholders can transfer shares into trust.
* Lose ownership of trades
* Irrevocable
* Shareholders direct the trustee on how to vote.
* Trustee distributes dividends to the beneficiaries - those holding a voting trust certificate.

Trust certificate is tradeable.

**Pooling Agreements **
Contract between shareholders agreeing to vote a certain a way - all shareholders keep their shares.

Agreement must be:
1) In writing and
2) Signed by owners of shares.

Agreement can bind subsequent owners of shares if the shares indicate that they are bound.

Question 33

FL

Promoters: Fiduciary Duty

Answer 33

Act in good faith and best interest of the investors

Promoter who profits from a sale to the corp may be liable to it for the profits or forced to rescind the sale unless there was full disclosure to and approval by the directors/shareholders.

Question 34

FL

Promotor: Contracts on Behalf of Corp

Answer 34

Promoters remain liable for contracts unless novation.

Persons purporting to act on behalf of a corporation they know there is no incorporation are jointly and severally liable for all liabilities created while acting.

**Expenses, Compensation, and Failure to Incorporate **
No right of action to recover expenses or salary from the corporation – some courts have allowed recovery of reasonable value of services rendered.

If no corporation formed – promoters must return all subscriber’s money, even if no wrongdoing.

Question 35

FL

Shareholder rights: legality of payment

Answer 35

1) Equity Test: A distribution 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 and

2) Balance Sheet or Bankruptcy Test: Distributions are limited to the amount by which total assets exceed the sum of total liabilities and the liquidation preferences of preferred shares.

Question 36

FL

Liability for Improper Dividends

Answer 36

Directors: Willful or negligent voting to declare dividends are liable

Shareholders: Liable to corporation creditors for amount of dividends received - regardless of whether they knew the corporation was insolvent

If received dividend knowing it was improper – could be held contributory to director’s liability.

Question 37

FL

Right to Inspect Books and Records

Answer 37

Absolute right to inspect, during regular business hours at corporation’s principal office.

Can inspect:
1) Articles
2) Bylaws
3) Meeting minutes
4) All written comments – past 3 years to shareholders
5) Names/addresses of current directors/officers
6) Most recent annual report

5 days written notice

Corporation can refuse if shareholder inspect for proper use. Demand must be made in good faith and for proper purpose.

Question 38

FL

Board of directors: removal

Answer 38

Can be removed without cause, no reason by plurality of the shareholders.

Unless elected by a class of stock – removed only by vote of that class.

Question 39

FL

Board of directors: vacancies

Answer 39

Filled by remaining directors/shareholders until next annual election.

Increase in # of directors is deemed to create vacancies.

Question 40

FL

Board of directors: Meetings

Answer 40

Can only act as a body, not individual directors and in a meeting.

1. Regular meetings:
* Every set amount of time and
* No notice required.

2. Special meeting
* * Requires 2 day notice and
* Needs a quorum - but article of incorporation can reduce number required for quorum but NEVER less than 1/3. 51% to pass!

Action without Meeting **
Only if unanimous written consent from entire board** of directors to the proposed action.

Question 41

FL

Board of directors: powers and duties

Answer 41

Powers are:
1) Power to elect/remove officers and
2) Declare dividends and
3) Initiate fundamental changes for submission to shareholders for approval and
4) Right to inspect corporation records, to reasonably rely on info provided by management and experts, to be reimbursed for expenses, and generally be indemnified in defending their actions taken in good faith.

Question 42

FL

board of directors: duty of care

Answer 42

Duty to act with care and prudence of an ordinary business person.

Doesn’t really matter in FL, but does matter if:
* Person is not informed about their decision.
* Being informed is taking a multi-perspective view of scenario and using professionals.

Question 43

FL

Board of directors: duty of loyalty

Answer 43

Duty to remain free of personal conflicts, loyal to the corporation above your own interests.

Question 44

FL

Interested Director Transaction

Answer 44

1) Disclose the conflict to the rest of the board of directors and
2) Abstain from voting.

Failure to disclose, and voting in, can still be fine if its fair to the corporation.

Question 45

FL

Corporate Opportunity Doctrine

Answer 45

Director came upon a business opportunity that the corporation you serve may be interested in as well.

Duty to inform your corporation of that opportunity before taking it If corporation doesn’t want it, you can take it.

Clawback: if director fails to disclose and takes the opportunity. When corporation find out, can sue director to force to give all benefits back to corporation.

Question 46

FL

Amendment of Articles

Answer 46

Corp may amend at any time as long as lawful and proper to include in original articles at the time of making the amendment.

Must be adopted by board of directors - BOD recommends to shareholders.

Can set conditions for approval or effectiveness of amendment.

**Amendments requiring voting: **
1) An absolute majority of the total shares entitled to vote and
2) If the proposed amendment would adversely affect a particular class of shareholders, an absolute majority of that class (even if non-voting)

**Amendments not requiring shareholder approval: **
Board of directors may adopt amendments such as:
1. extending duration of corporation
2. deleting names of initial directors and
3. changes to corporation name without shareholder approval.

Question 47

FL

Corporation: Merger and Share Exchange

Answer 47

Share exchange
1 corporation acquires all outstanding shares of another corporation, now controlled by one entity.

**Merger **
Everyone votes to merge, even non-voting shares.
No quorum required - just 50% +1

**Articles of Merger **
Notify the state of the merger.

**Exception: **
When 1 company owns 80% of another’s shares - can file article of merger

Sale of Assets
Sale by a corporation of all or substantially all of its assets is deemed a fundamental change and must be approved by the shareholders of the acquired corporation.

De Facto Merger - FL does not accept or reject.

**Rights of Creditors **
Corporation purchasing assets of another does NOT by reason of the purchase become liable to debts unless agrees to assume them.

Question 48

FL

Liquidation and Dissolution

Answer 48

Liquidation is the process of marshalling a corporation’s assets, paying all its debts, and distributing the residual property or proceeds, if any, to the shareholders.

**Voluntary Dissolution **
A corporation may voluntarily liquidate and dissolve at any time without judicial supervision. Notice must be given to all known creditors.

Articles of Dissolution not filed until the liquidation is complete.

**Involuntary Dissolution **
Any shareholder can bring an action to have the corporation involuntarily liquidated and dissolved if:
1) There is a deadlock of the directors AND the corporation is threatened with irreparable injury, or the corporation’s business and affairs cannot be conducted to the advantage of the shareholders because of the deadlock, or both or
2) The shareholders are deadlocked in voting power and unable to elect successor directors or
3) There is waste or misappropriation of the corporate assets or
4) The directors or those involved in the control of the corporation are acting, will act, or have acted illegally or fraudulently.

These grounds for involuntary dissolution are not available to
shareholders of public companies

Involuntary liquidation is discretionary with the court and usually will not be granted unless it is necessary to prevent irreparable injury and is in the best interest of the corporation and of the shareholders as a whole.

Question 49

FL

Liquidation: Limit liability against corporation claims

Answer 49

File a notice of dissolution with the department of state and request that persons with claims that are not known present them in accordance with the notice or
2) Within 10 days after adopting the articles of dissolution, publish a “notice of corporate dissolution” once a week for two consecutive weeks in a newspaper of general circulation in a FL county in which the corporation has its principal office, or if none, in a FL county in which the corporation owns real or personal property.

Question 50

FL

Not for Profit Corporations: formation

Answer 50

Similar requirements to regular corporations.

Exceptions:
* Articles must set forth the corporation’s purpose.
* Articles may set forth:
- The transferability or non-transferability of membership and
- A provision to the effect that the corporation will be subordinate and subject to the authority of any head or national association, lodge, order, etc.

Question 51

FL

Not for Profit Corporations

Question 52

FL

Not for Profit Corporations: members

Answer 52

• Does not need to have members.
• Members have no voting rights.
• Members are generally not personally liable for corporate obligations.
• Generally, members may not be paid any part of the corporation’s income but may be paid reasonably for their services.

Question 53

FL

Not for Profit Corporations: Directors

Answer 53

Board of Directors must consist of 3 or more persons, with the number specified in the article of incorporation or bylaws.

Corporation may not make loans to its directors or officers or any other entity in which one or more of its directors/officers holds a substantial financial interest - Except loans between certain corporations exempt from federal income taxation.

Directors may be removed from office with or without cause by the vote of members.

Question 54

FL

Not for Profit Corporations: Dissolution

Answer 54

Board of directors may dissolve the corporation by a majority vote.

A plan of distribution of assets must provide that:
1) All liabilities and obligations be paid and discharged, or adequate provisions be made therefor and
2) Assets held on condition requiring return, transfer, or conveyance upon dissolution be properly returned and
3) Assets received and held subject to limitations permitting their use only for charitable, religious, education, or similar purposes be transferred to other organizations engaged in substantially similar activities and
4) Other assets, if any, be distributed in accordance with the articles of incorporation or the bylaws to the extent such determine the distributive rights of members; and
5) Any remaining assets be distributed to such persons, trusts, societies, organizations or corporations, as specified in the plan of distribution of assets.

Question 55

FL

Foreign Corporations

Answer 55

FL allows foreign corporations to transact business in FL if they qualify by filing an application with the FL department of state.

Foreign corporation must maintain a registered office in FL, appoint a registered agent, and file an annual report.

Question 56

FL

Benefit and Social Purpose Corporations

Answer 56

Benefit corporations and social purpose corporations are entities designed to allow businesses to engage in societal benefit programs for profit.

Benefit corporations must pursue a general public benefit and may pursue a specific public benefit.

Directors are mandated to consider the effects of their actions on the corporation’s shareholders and specific designated benefit purpose and consider the effects of any of its actions on society as a whole.

Question 57

FL

Service of Process: Domestic and qualified foreign corporations

Answer 57

Process may be served on a corporation by personally serving its registered agent.

If there is no registered agent or agent cannot be served, process can be served on, in order of availability (includes foreign corporations):
1) The chair of the board
2) The president
3) Vice president
4) Secretary
5) Treasurer

In their absence, service may be had on the secretary of state.

Plaintiff must also mail to the defendant notice of service and a copy of the complaint.

If a foreign corporation has none of the above persons in FL, process may be served on any agent transacting business for it within the state.