FL CORPORATIONS

Question 1

Articles of Incorporation

Answer 1

The articles of incorporation must contain
1. Corporate name/address (must indicate corporate status)
2. Name and address of each incorporator
3. The address of registered office and name of registered agent
4. The number of authorized shares. (Max number of shares corp is permitted to sell)

Question 2

Incorporators

Answer 2

One or more natural persons, such as an entity or corporation, partnership, or assoc, may act as an incorporator

Question 3

Default Rules

Answer 3

Default rules include
1. Corporation has perpetual duration
2. Corporation has same powers as an individual
3. Corporation may achieve any lawful purpose

Question 4

Ultra Vires Acts

Answer 4

An act that is beyond the corporation’s stated purpose. (I.e. used something other than default rule)
Are valid, but:
1. Shareholders or state can seek injunction and
2. Officer/directors are personally liable in direct/derivative action by the corporation for any ultra vires acts they cause

Question 5

De Jure Corporation

Answer 5

The corporation has been properly drafted and filed articles. Filing is conclusive proof a corporation was duly formed in accordance with the law.

Question 6

Annual Report

Answer 6

Corporations qualified to do business in FL must file an annual report with the department of state disclosing
1. Corporation’s name
2. Date of incorporation
3. Address of its principal office
4. Federal employer ID number
5. Names and business street addresses of its principal officers and directors and
6. Street address of registered office and registered agent

Question 7

De Facto Corporation

Answer 7

A de facto corporation may be found to exist even if there is a substantial defect in formation, provided there has been a GF effort to incorporate, colorable compliance with the law, and actual use of corporation status.
Significant because it gives you limited liability so that you are not personally liable

Question 8

Doctrines to Bail Out Defective Corporation

Answer 8

De Facto Corporation
Corporation by Estoppel

Question 9

Corporation by Estoppel

Answer 9

Corporation by estoppel may be applied when persons have dealt with a defectively formed corporation as if it were a legal corporation. These persons may be estoppel from later arguing that the business is not a corporation.
Limitation:
— Protects shareholders against contract claims, not tort claims

Question 10

Bylaws (Adopt, amend, conflict)

Answer 10

Contain rules for internal governance. They may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or article of incorporation.
Either the incorporators or the directors may adopt unless that power is reserved to shareholders in articles.
Either directors or shareholders may amend the bylaws, unless that power is reserved to shareholders.
if there is a conflict between the articles and bylaws, the articles control.

Question 11

Pre-Incorporation Contracts

Answer 11

Contracts entered into before the corporation is filed. A promoter undertakes to enter into pre-incorporation contracts.

Question 12

Liability on Pre-Incorporation Contracts

Answer 12

General rule — is not liable to the contract made by the promoter unless the corp adopts the K as its own, either expressly or impliedly.

Question 13

Liability of Promoter

Answer 13

The promoter is liable on the contract unless there is a notation, where, the corporation, promoter, and third party agree to substitute the corporation for the promoter.

Question 14

Foreign Corporation

Answer 14

A corporation organized under the laws of any jurisdiction other than FL. A foreign corporation transacting business in FL must qualify to do business here.
Transacting business means engaging in intrastate transactions in FL on a regular business.
To qualify, corp must get a certificate of authority from the Dept of State (provide information from its articles and being in good standing in home state)
Penalty — Are not permitted to sue in FL courts, although they can be sued and may defend. State can sue to recover the amount of all fees and taxes that would have been due upon qualification.

Question 15

Issuance

Answer 15

Corporation sells its own shares.

Question 16

Equity

Answer 16

Ownership interests in a corporation that the corp sells to raise money.

Question 17

Outstanding Shares

Answer 17

Outstanding shares are issued share the corporation has not reacquired.

Question 18

Subscription

Answer 18

Is a written offer to buy stock from a corporation.

Question 19

Revoking Subscriptions

Answer 19

Pre-incorporation = irrevocable for 6 months or as otherwise stated
After = revocable until board accepts

Question 20

Form of Consideration when Issuing stock

Answer 20

Consideration may be any tangible or intangible property or benefit to the corporation. Shares may be issued for cash, other property, or past services, or promises to perform services evidence by a written K

Question 21

Par Value

Answer 21

Par Value is a minimum issuance of price. It is NOT fair market value.

Question 22

Capital Surplus

Answer 22

Money received in excess of par value.

Question 23

Watered Stock

Answer 23

Watered stock results when someone pays less than par value for shares.

Question 24

Shareholder Liability for Selling Below Par

Answer 24

If a holder or subscriber pays less than the full consideration they agreed to pay, they may be held liable by the corporation and its successors and assigns, trustees in bankruptcy, and shareholders suing derivatively.

Question 25

Treasury Shares

Answer 25

These are shares that are reacquired by the corporation. They may be cancelled or resold for any price since par value provisions do not apply to treasury shares (the shares have been issued already).

Question 26

Preemptive Rights

Answer 26

A shareholder’s preemptive rights entitled them to purchase a number of shares of new stock or treasury shares that are being issued sufficient to maintain their relative voting strength. i.e. allows the shareholder to maintain their percentage ownership interest in the corporation.
Default Rule you do NOT get this unless it is specified in the articles.
Easy for the corporation to evade by issuing shares that are NOT for money.

Question 27

Directors - Statutory Requirements

Answer 27

Number - a corporation may have one or more directors. Natural persons. 18 years or older.
Election - shareholders elect directors at the annual meeting. May remove with or without cause at any time.
Vacancies - a vacancy is filled by the remaining directors or shareholders, unless otherwise specified.
Meetings - directors are required to meet and act as a board, UNLESS all directors consent in writing.
— Notice is only required for special meetings
— Quorum consists of a majority of all directors on the board, with vacant directors counted as absent. The minimum quorum is no fewer than 1/3 of all directors.
— Voting: a majority of directors present must assent, unless the articles or bylaws requires a greater number. Actions may be approved w/o meeting if directors consent unanimously in writing. Voting by proxy/agreement is prohibited.

Question 28

Role of Directors (Management)

Answer 28

Directors have powers as necessary to manage the business of the corporation. Including, power to set policy, supervise officers, elect or remove officers, etc.

Question 29

Role of Directors (Delegation)

Answer 29

Directors and delegate their power. however, a committee cannot amend bylaws, fill vacancies on the board or a board committee, or authorize the reacquisition of shares except with limits set by the board.

Question 30

Fiduciary Duties

Answer 30

Duties of care and loyalty.
Directors are fiduciaries of the corporation and its shareholders, and owe fiduciary duties of care and loyalty.
Duty of Care: Director must act with care of a prudent person in a like position would reasonably believe appropriate in the circumstances.
— Nonfeasance = This is when the director does nothing. I.e. continuously fails to attend board meetings.
— Misfeasance = Occurs when a director does something that causes the corporation a loss.
^^ Business judgment rule will be applied.
Duty of Loyalty: Director must act in GF and with a reasonable belief that what they do is in the corporation’s best interest.
— Interested Director Transaction = Occurs when the director is on both sides of the transaction
—»> Safe Harbors = Void unless, (i) fair to corp or (ii) if approved by majority of disinterested directors/shareholders, burden shifts to prove unfairness
— Competing Ventures = directors cannot compete with their corporation
— Corporate Opportunity Doctrine = directors and officers must inform of business opportunities of which it might wish to take advantage of. Director cannot usurp an opportunity the corp might be interested in

Question 31

Other State Law Bases of Director Liability

Answer 31

— Ultra Vires
— Loans
— Unlawful Distributions

Question 32

Limits on Director Liability for Breach of Fiduciary Duty

Answer 32

— Dissenting director/Absent Director — not liable for their vote or lack of vote for breaches of fiduciary duties
— Good Faith Reliance — Directors may rely in GF on the opinion of, or information provided by, competent officers, employees or professionals
— Immunity statute — Directors not liable for damages for breaching the duty of care or loyalty unless they also violated criminal law, received an improper personal benefit, authorized unlawful dividend, or engaged in reckless, willful, or intentional misconduct. Immunity effective against 3rd parties.

Question 33

Outside Director

Answer 33

Director not employed by the corporation.

Question 34

Officers

Answer 34

Officers are corporate agents. Officers fiduciary duties, rights, and liabilities are similar to those of directors. They are there for the day to day operation of the company.

Question 35

Officers as Agents

Answer 35

The law of agency applies to give the officer or agent the power to bind the corporation in dealings with third parties. The authority may be actual or apparent (created by acts of principal/corporation giving the appearance that authority exists).

Question 36

Offices

Answer 36

No particular officers are required, but a corporation must have the officers described in its bylaws or appointed by the board. One person may hold two or more officers.

Question 37

Selection/Removal of Officers

Answer 37

Officers are elected or appointed, and removed, by the BOD, and carry out their duties under the general supervision of the board in accordance with corporate policy. Board has power to remove even if it would breach the officer’s K with the company.

Question 38

Indemnification of Directors and Officers

Answer 38

Prohibited = CO is prohibited from indemnifying a director or officer against liability incurred in a proceeding if the director or officer was held liable to the corporation, held to have received improper personal benefit, or held to have violated criminal law.
Mandatory = if a director or officer is wholly successful in a suit brought against them for action they took in their corporate capacity on on the merits or otherwise, the corporation must indemnify the director. (Thus procedural defenses like SOL are just as good as winning on the merits)
Permissive = covers every expense incurred by a director or officer that is not in the mandatory or prohibited indemnification categories, including a settlement.
Judicial Discretion court has its own power to indemnify

Question 39

Shareholder Management

Answer 39

Shareholders normally do not have power to control the day to day but may be given management powers by the articles. Shareholders exercise indirect management by electing directors, amending articles or bylaws, or approving fundamental corporate changes. Can also be given management powers by unanimous shareholder agent if the COs shares are not publicly traded.

Question 40

Piercing the Corporate Veil

Answer 40

GENERALLY, shareholders have limited liability, which simply means they are not personally liable for the debts of the CO.
However, a court may disregard the corporate entity, or pierce the corporate veil, in certain situations. Shareholders active may be held jointly and severally liable as if they were partners but inactive shareholders are generally not held liable.

Question 41

Alter Ego Doctrine

Answer 41

The court may disregard the corporate entity when the corporation appears to be the alter ego of the shareholders and used by them as a conduit for personal affairs. FL law requires a showing of improper conduct, such as, commingling personal funds with corporate funds.

Question 42

Subsidiary Corporations

Answer 42

A parent corporation may be liable for the debts of a subsidiary when the subsidiary was inadequately capitalized, intermingles with the parent, or otherwise not a true and distinct entity.

Question 43

Thin Captialization

Answer 43

A corporation must be formed with sufficient capital to meet its reasonably foreseeable needs.

Question 44

Derivative Suit

Answer 44

A derivative suit is one brought by a shareholder to enforce a corporate cause of action when the BOD for some reason has not sought to enforce the COs rights.
Recovery in the suit goes to the corporation.
I.e. the shareholder is suing to enforce the rights of the corporation.

Question 45

Special Requirements for Derivative Suits

Answer 45

Standing - the shareholder must have owned stock in the corporation when the claim arose or acquired it by operation of law from someone who did. Also must be a shareholder at the time the suit is commenced.
Demand - The shareholder must first make demand on the directors that they prosecute the suit, unless would be futile. (Board are the wrongdoers). Must then wait 90 days before bringing suit unless (1) shareholder is notified owner that demand has been rejected or (2) the delay will cause irreparable injury.
Dismissal by Corporation - the court may dismiss a derivative proceeding if it finds that one of the following grounds has made a GF determination that its not in the best interests of the corporation
a) majority vote of qualified directors
B) majority vote of a committee
C) panel of one or more disinterested and independent individual persons appointed by court

Question 46

Shareholder Voting - Who Votes?

Answer 46

Eligibility of a shareholder to vote is determined by stock ownership as of the record date, which may not be more than 70 days before the first notice of meeting is delivered to shareholders.
Exceptions:
Death — the record owner’s executor may vote
Proxies — person appointed by record owner to vote owners shares. Valid for the term provided in the appointment. IF not term, 11 months. Proxies are revocable at the pleasure of the shareholder unless provided it is irrevocable and the proxy holder has an interest in the shares.

Question 47

Voting trust

Answer 47

Shareholders may establish a voting trust to irrevocably confer upon a trustee the right to vote their shares. need a written trust document and a transfer of legal title to trustee. Shareholders retain all of their other rights except the right to vote.

Question 48

Voting Agreement

Answer 48

In a voting agreement, shareholders agree to vote their shares in a certain way. The agreement must be in writing and signed. Transferees of shares are bound if the existence of the agreement is noted on the share certificate or they otherwise have notice of it.

Question 49

Where do shareholders vote?

Answer 49

Action without a meeting — can take action without meeting if there are written consents from the minimum number of shares needed to take action at a meeting where all shares entitled to vote are present and voting
Meeting — annual meeting must be held for the election of directors and other business. If no annual meeting for 15 month, any shareholder may apply to the court for an order requiring it. Special meetings may be called at any time for any appropriate purpose.
Shareholders must be notified in writing of meetings at least 10 days in advance of the meeting

Question 50

Shareholder Meeting Quorum

Answer 50

Whether a quorum is present is determined at the start of the meeting, not each time a vote is taken. Therefore, a shareholder’s departure after the meeting cannot break a quorum and prevent a vote. The quorum can be moved up or down in the articles, but it can never be less than 1/3

Question 51

Shareholder Voting (When approved)

Answer 51

A matter is approved if the votes cast for it exceed the votes cast against it, unless the articles require a greater number of affirmative votes.
Abstention is irrelevant.

Question 52

Election of Directors (Voting)

Answer 52

Plurality Voting - election of directors is by plurality vote of shareholders unless the articles provide for cumulative voting.
Straight Voting - a shareholder may vote the number of shares he owns for each of as many directors as there are to be elected. However, cannot add votes together between directors.
Cumulative Voting - this intended to aid minority shareholders in obtaining some representation on the board of directors. Means that each shareholder is entitled to a number of votes equal to the number of his voting shares multiplied by the number of directors to be elected and may cast his votes for any one candidate or divide them among any number of candidates.
Formula - S/(D+1) - need more than
S = number of shares voting
D = number of directors to be elected
Cumulative voting is opt in- you dont get it if silent

Question 53

Sale of Stock By Shareholder

Answer 53

Shareholders do not need any permission to sell stock and that new person becomes full fledge stockholder with all rights.
Stock Transfer Restrictions — Restrictions will be enforced if reasonable. The restriction cannot operate as a absolute restraint on alienation.
Action Against Transferee — can sue if transferee knew of restriction or it was noted on the face of the certificates

Question 54

Right of Shareholders to Inspect Books and Records

Answer 54

Standing — any shareholder may inspect corporate books and records.
Procedure — General rule, inspection for proper purpose for meeting minutes of board, records of actions taken w/o a meeting by board or committees, financial statements and accounting records, record of shareholders, and any other books and records
Corp may refuse if the shareholder has sold the list of shareholders or aided and abetted another in doing so, has improperly used the info, is not acting in GF, or does not have a proper purpose.

Question 55

Types of Distributions

Answer 55

Dividends are the most common type of distribution but other types include a repurchase or a redemption

Question 56

Dividends are discretionary

Answer 56

Generally, shareholders cannot compel directors to declare dividends. Absent BF, directors are given wide discretion in this area. A court wont compel absent an abuse of discretion.

Question 57

Which Shareholders Get Dividends

Answer 57

Preferred Shareholders — means pay first, they do not share in distributions beyond the preference unless they are participating
Participating shares — participating shares means pay again. Cumulative shares that are participating get their preference and then share in other distributions.
Cumulative Shareholders — Cumulative means carry forward. if a dividends is not declared in a particular year, the preference is lost unless the preferred shares state that they are cumulative. In that case, if dividends are not declared, the preference is carried forward.

Question 58

Test Before Corp May Make Distribution

Answer 58

Insolvency Test — The corporation will be able to pay its debts as they become due in the ordinary course of business
Balance Sheet or Bankruptcy Test — Distributions are limited to the amount by which total assets exceed the same of total liabilities and the dissolution preferences or preferred shares

Question 59

Liability for Unlawful Distributions

Answer 59

A) Directors — directors who willfull or negligently vote to declare dividends are liable to the corporation for the amount paid improperly
B) shareholders — liable to the corporation and corporate creditors for the amount of dividends received whether or not they knew the corporation was insolvent

Question 60

Dissenting Shareholders Appraisal Remedy in General

Answer 60

Shareholders who are dissatisfied with the terms of a fundamental corporate change usually are permitted to compel the corporation to buy their shares at fair value.
Limited Availability — Generally not available for any class or series of shares tha t
1. Traded on national securities exchange or
2. Has at least 2k shareholders and the outstanding shares have a value of at least $20 million

Question 61

Amendment of Articles - Required Vote

Answer 61

Amendments must be first adopted by the board. Unless the articles, statute, or board requires a greater vote, the amendment may be approved by an absolute majority and if the proposed amendment would adversely affect a particular class of shareholders, an absolute majority of that class.

Question 62

Mergers and Share Exchanges

Answer 62

In a merger, one of the combining corporations remains in being and absorbs the other.
In a share exchange, one corporation acquires all of the outstanding shares of one or more classes or series of another corporation.
Approval
Generally, BOD of both corps develop a plan. Both BODs must approve the plan as well as an absolute majority of the shares of both corporations. Approved plan becomes effective when articles of merger or share exchanges are filed with the Dept of State.

Question 63

Sale of All or Substantially All Assets

Answer 63

Need approval by both boards and an absolute majority of the selling corporation’s shares. only a fundamental change for the selling corporation.

Question 64

Dissolution

Answer 64

Dissolution is the legal termination of the corporate entity. Liquidation is the process of marshaling the corporations assets, paying its debts, and distributing the residual property or proceeds to the shareholders.

Question 65

Voluntary Dissolution

Answer 65

A corporation may voluntarily liquidate and dissolve at any time without judicial supervision. Dissolution must be either with
1. Approval of the board and an absolute majority of share or
2. Written consent of an absolute majority of shares (board action not needed)

Question 66

Involuntary Dissolution

Answer 66

A). Shareholder Petition
— any shareholder can bring an action to have the CO involuntarily liquidated and dissolved if there
1. Is a deadlock of the directors and the corporation is threatened with irreparable injury
2. The shareholders are deadlocked in voting power and unable to elect successor directors
3. There is waste or misappropriation of the assets
4. Directors or those involved in the control of the corporation are acting, will act, or have acted illegally or fraudulently
** the court can order alternative remedies instead of dissolution
B). Creditor’s Petition
— unsatisfied creditors may also sue to liquidate an unsolved corporation. Can be dissolved if the corporation is insolvent and they have an unsatisfied judgment against it or the corporation admits the debt in writing

Question 67

Administrative Dissolution

Answer 67

State may seek for fraud, illegality, abuse of its corporate powers, or failure to file an annual report or appoint registered agent.

Question 68

Claims against corporation after dissolution

Answer 68

After dissolution, a claim may be entered against the corporation to the extent of its undistributed assets. If the corporations assets have been distributed in liquidation, a claim may be entered against a shareholder to the extent of the shareholder’s pro rate share or the assets distributed to the shareholder, whichever is less.
Resolution of Unknown Claims
to limit liability, a CO may
1. file a notice of dissolution with the dept of state and request persons with claims that are not known present them in accord with the notice or
2. Within 10 days after adopting the articles, publish a notice of corporate dissolution, once a week for two consecutive weeks in newspaper in county in which the CO has its principal office or owns real property

Question 69

Not For Profit COs

Answer 69

Purpose must be for public benefit and lawful purpose. Provisions to be set forth in articles are similar. Bylaws must be adopted by the board. Power to amend is also vested in the board, unless otherwise provided. Need at least 3 directors. Dissolving requires majority vote. Assets can be transferred to similar nonprofit.

Question 70

Hybrid Entities

Answer 70

Benefit and social purpose corporations are hybrid entities designed to benefit society and generate profit for the owners. Their profit making ability distinguishes them from not for profit.
Must pursue a general public benefit. Art of Inc must include statement that the CO is a benefit CO or a social purpose CO. The decision to become or cease being a benefit/social purpose CO must be approved by at least 2/3 vote of each class of shares, as a sep group, even if class does not ordinary have voting rights.

Question 71

Section 16(b) of the Securities Exchange Act applies to

Answer 71

• to “insiders”
• “short swing” profits
• does not require fraudulent intent or negligence

Question 72

Who is liable under business trust?

Answer 72

Trustees of a business trust are generally held personally liable to trust creditors. But, contractual exculpatory clauses negating the trustee’s personal liability and relegating creditors to the trust assets are quite common and generally held valid. Even absent the clause, when a trustee is found liable, she is usually entitled to indemnification from the trust, and judgment creditors of the trustee may have an equitable derivative right to enforce the trustees indemnification rights for their own benefits. Shareholders have no personal liability to the trust or its creditors

Question 73

FL Control Share Acquisition Statute

Answer 73

Enacted to protect corporations from outside takeovers. In essence, give the corporation the ability to prevent or restrict changes in control by altering voting rights when a person acquires, either directly the ownership of or power to direct the vote of control shares.
Control shares are shares that, but for the statute, would give a person voting power crossing one of the following thresholds:
* 1/5 or more but less than 1/3 all voting power
* 1/3 or more but less than a majority of all voting power
* a majority or more
**Applies to*b any issuing public corporation having (1) 100 or more share holders (2) its principal place of business or office or substantial assets in FL and (3) either 1k or more than 10% of its shareholders resident in FL
Corporation may elect to opt out by charter or bylaws amendment adopted before a control share acquisition

Question 74

WhEn there is a vacancy on the board

Answer 74

It may be filled by the remaining directors unless the articles provide otherwise, until the next annual election.