FL Corporations Flashcards
How can a person become a member of an LLC?
1) as provided in the O/A;
2) as the result of a MERGER/an interest exchange CONVERSION/ or DOMESTICATION;
3) with the CONSENT of all the members; or
4) when a dissolved LLC has not had members for 90 consecutive days…by consent of TRANSFEREES owning the right to receive a majority of the distributions
LLC can file ___________ stating each person’s authority and any limits on that authority
Statement of Authority (SoA)
A judgment creditor of a member of a multi-member LLC has as his only remedy a ____________
charging order
An LLC is dissolved and must wind up its business upon the occurrence of:
“To dissolve LLC as a REMEDY, OA, Consent, or 90 days no Memmy”
i) An event/circumstance triggered by O/A;
ii) CONSENT of all the members; or
iii) The passage of 90 consecutive days during which the company has no members, unless (a) consent to admit at least 1 specified person as a member is given by transferees owning the rights to receive a majority of distributions; and (b) at least 1 person becomes a member in accordance with the consent
What must an LLC’s articles of organization state?
(i) the name of the LLC,
(ii) the address of the principal office, and
(iii) the name, address, and written acceptance of the company’s registered agent
In general, upon liquidation, a _____________ of the corporation will take precedence over a preferred shareholder with regard to the corporation’s funds, and a preferred shareholder will take precedence over a _________________
secured creditor; common shareholder
Prior to formation of a corporation, what is the role of a promoter?
To engage in activities in order to bring the corporation into existence as a business entity
How many directors must a Florida corporation have?
“Dean needs 3 ROLLIES but only 1 AP”
1
*Non-profits –> 3
What provisions cannot be altered by the operating agreement?
Statutory provisions governing, among others, registered agents, dissolutions, mergers, indemnities, and the rights and obligations of members and managers
What is the two-step approval process to amend the articles of incorporation if the company has issued stock?
i) The board of directors must adopt the amendment to the articles;
and
ii) The board must submit the amendment to the shareholders for their approval by majority vote
A corporation can protect itself against the failure to render future consideration by placing the stock in an ___________________or otherwise restricting the transfer of the stock until the promised services are performed, the promissory note is paid, or the promised benefit is received
Escrow account
Upon a finding of ___________, Florida courts refuse to recognize the de facto status of a corporation
bad faith
Does Florida issue a certificate of incorporation?
No
In Florida, what is the primary cause of action available to persons who have traded stock?
Fraud
A ________________ is a for-profit entity with a corporate purpose of creating or pursuing a general public benefit, which is anything that has a “material, positive effect on society and the environment.”
Benefit corporation or “B Corp”
A court considers the following factors when determining whether to pierce the corporate veil:
- undercapitalization (i.e., not having sufficient capital) at the time of formation
- *disregard of corporate formalities
- use of corporate assets as the shareholders’ own assets
- self-dealing with the corporation
- siphoning of corporate funds or stripping of corporate assets
- use of the corporate form to avoid statutory requirements or legal obligations
- unreasonable shareholder capital contributions in the form of loans
- shareholders’ impermissible control or domination over the corporation
- wrongful, misleading, or fraudulent dealings with a corporate creditor and
- whether the failure to allow piercing will sanction fraud or promote injustice
***HOWEVER, failing to respect the corporate entity alone is INSUFFICIENT to pierce the corporate veil
Is failing to respect the corporate entity alone sufficient to pierce the corporate veil?
NO
To become an S corporation, the corporation must meet the following requirements:
- it can have NO MORE than 100 shareholders
- the shareholders must be individuals, estates, certain exempt organizations, and certain trusts
- the shareholders must be United States citizens or permanent residents
- the corporation CANNOT have more than 1 class of stock
and
- each shareholder must elect for the corporation to become an S corporation.
A member of a limited liability company has the power to withdraw their membership.
Can the LLC continue to operate w/o the approval of the withdrawing member?
Bonus: Is buying out the withdrawing member required?
Yes. LLC continues to operate if there are remaining members, WITHOUT the approval of the withdrawing member;
No. The remaining members are NOT required to buy out the withdrawing member
The issuance of stock may be authorized by the board of directors, or if the articles provide,
the Shareholders
What can constitute considerations for a stock?
Any tangible or intangible property
(e.g., cash, promissory note, other securities of the corporation) or
a benefit to the corporation
(e.g., services previously rendered, promise to perform services evidenced by a written contract, forgiveness of an existing debt)
A stock split does not result in the distribution of corporate assets to the shareholders.
Therefore, a stock split is not subject to the
Distribution Insolvency tests
A shareholder has a right to inspect and copy corporate records, books, papers, etc., upon
Five days’ WRITTEN notice
An ultra vires act may be enforceable if one of what the three situations does not exist?
Absent:
- a shareholder filing suit to enjoin the corporation’s ultra vires action
- the corporation taking action against a director, an officer, or an employee of the corporation who engages in such action or
- the state initiating a proceeding against the corporation to enjoin its ultra vires action (known as “quo warranto”)
Or presence of a third-party trying to challenge the act (no standing)
How many of the total # of directors have to be present at a meeting to have a quorum?
A majority.
E.g. 20 total directors
13 present at a meeting
13 > 10. Majority satisfied
*Quorum cannot be less than 1/3
When a quorum of directors is present, what is the minimum # of directors that must vote for the resolution to pass?
A majority.
*Quorum cannot be less than 1/3
Shareholders do not owe a fiduciary duty to their corporations, but a duty to MINORITY shareholders may arise when
the CONTROLLING (Big Majority, e.g. 51%) shareholder sells her interest to an outsider
The duty of loyalty requires directors (and officers) to act in a manner that the director reasonably believes is in the best interests of the corporation
A director engaged in a conflict-of-interest transaction, also known as self-dealing, violates her duty of loyalty
Terra Corp. is incorporated in Florida with its principal office in Destin. Phyllis is the president of Terra Corp. and owns 51% of its shares. A potential buyer approached Phyllis with an offer to purchase her shares. The buyer offered Phyllis an additional bonus if Phyllis would step down from her office as president. Phyllis approached her attorney to determine whether the agreement to sell her shares is valid.
The attorney should advise Phyllis that
Answers:
A) the agreement breaches Phyllis’s duty to the corporation as a majority shareholder
B) the agreement could breach Phyllis’ duty of loyalty as an officer of the corporation
C) the agreement is valid because shareholders never owe duties to one another
D) the agreement is valid because Phyllis is not trying to eliminate other shareholders
B) the agreement could breach Phyllis’ duty of loyalty as an officer of the corporation
Majority shareholder owes F/D to minority shareholders when selling their interests
Does a promoter automatically receive reimbursement for formation costs?
No
By default, the corporation is/or is not liable for pre-incorporation transactions?
Is NOT liable
but may be liable if it RATIFIES the pre-incorporation transaction (adopts)
By default, who can authorize the distribution of dividends?
only directors
When MUST a corporation indemnify a director?
For fees incurred in the successful defense of a proceeding against the director
In which of the following situations does a shareholder NOT have the right to compel the corporation to purchase her shares of stock?
A. A merger of the corporation with another corporation has been authorized.
B. A corporation is compelling the shareholders of another corporation to exchange their stock for stock in the corporation (i.e., a share exchange).
C. The articles of incorporation are being amended to alter voting rights.
D. The corporate bylaws are being amended to allow for director indemnification.
D. The corporate bylaws are being amended to allow for director indemnification.
May a prospective member also be the authorized representative for an LLC?
YES
A circuit court may dissolve an LLC in a proceeding brought by:
(1) the Department of Legal Affairs,
(2) a manager or member of the LLC, or
(3) the LLC itself
Fill in the blanks. There are two tests that a corporation must pass in order to be solvent and therefore able to make a distribution: an _________ test and a __________test.
Equity; Balance Sheet
True or False: A member of an ongoing LLC has a right to a distribution before dissolution and winding up the LLC.
False; does not
True or False: The duty of loyalty may be waived in the LLC’s operating agreement.
TRUE
Fill in the blank. Generally, the LLC has __ days during which to respond to a demand for information regarding the LLC.
10
Fill in the blank. _______________ may be filed with the state to correct an inaccuracy or defect in the articles.
Articles of Correction
Florida regulations governing the sale of securities (known as “blue-sky laws”) deviate from the blue-sky law as dictated in Federal SEC Rule 10b-5.
False; they do not
True or False: The articles or the bylaws may prohibit an internal corporate claim in all Florida courts or require such claims to be determined by arbitration.
False; may not
True or False: An operating agreement may be an oral or implied agreement of the LLC members.
TRUE
In order to withdraw from a member-managed or manager-managed LLC, the withdrawing member/manager must:
file a STATEMENT OF DISSOCIATION with the department,
– containing the date the member withdrew or will withdraw
and
– a statement that the LLC was notified of the dissociation in writing
What is the statutory procedure for merging a corporation in the state of Florida?
i) The board of directors for each domestic corporation must adopt a plan of merger;
ii) The shareholders of each domestic corporation must usually adopt the plan of merger; and
iii) The required documents (e.g., articles of merger, amended articles of incorporation) must be filed with the department.
Fill in the blank. Florida imposes a __% state income tax on corporations after an exemption of $50,000 of net income.
5.50%
Fill in the blanks. In Florida, a ___________________is a corporation with a purpose that is statutorily limited to the rendering of a professional service, and a ________________ is an LLC subject to a similar limited purpose.
professional corporation; professional limited liability company
Generally, a special meeting may be called by the board of directors or by shareholders who own at least ____ of the shares entitled to vote at the meeting, but the articles may set a higher percentage of no more than ___.
10%; 50%
FL does not specify the officers a corporation must have, and allows the same person to hold multiple positions (i.e. same person is both President and Secretary)
But FL does require that the officers be INDIVIDUALS and that one officer be assigned the responsibility of
- PREPPING MINUTES for directors’/SHs’ meetings
AND - AUTHENTICATING corporate records
In Florida, unless a corporation’s articles state otherwise, the sale/transfer of corporation’s assets in the usual and regular course of business does not require approval by
the shareholders NOR its board of directors
Once a petitioner establishes the necessary grounds for dissolution, the court may:
s.
- issue injunctions
- appoint a receiver or provisional director
- order the purchase of the petitioning shareholder’s shares pursuant to an election by the corporation or another shareholder,
AND - take other appropriate action
True or False:
Maintaining bank accounts in Florida, on its own, does not constitute “transacting business” and is insufficient to establish jurisdiction over a foreign corporation in Florida courts.
TRUE
In Florida, a foreign corporation (i.e., one that is incorporated in another state) is required to register with Florida and obtain a certificate of authority to do business in the state.
Failing to do so prevents the corporation from
*prosecuting or maintaining an action in Florida courts,
*but NOT from being sued there
XYZ Corporation was incorporated in a state bordering Florida but failed to register with Florida before maintaining bank accounts in Florida. XYZ negligently hired a disreputable data security service, which lost the private information of hundreds of clients; the clients, who were not citizens of Florida, sought to sue after their identities were stolen.
Which of the following reflects Florida jurisdiction over XYZ on these facts?
Answers:
XYZ has not subjected itself to Florida courts.
XYZ can be sued in Florida.
XYZ can be sued in Florida, and can bring suit in Florida.
XYZ can be sued in Florida, but only for exceeding its ability to do business in the state.
XYZ has not subjected itself to Florida courts.
A Florida corporation must have at least _____ director, and the articles or bylaws must specify the # of directors the corp requires/or method for determining that #
ONE
What is the process for a corp authorize a new class of stock?
- corp MUST AMEND its ARTICLES OF INCORPORATION
+ if corp has issued stock, it MUST follow the following 2-step process:
1) B.O.D must ADOPT the amendments to the articles
2) the B.O.D must SUBMIT the amendments to its S/H for approval (needs majority vote-simply majority)
*If DIFFERENT class/series of stock, then a class/series of stock that is affected by the amendment is entitled to vote (even if not otherwise entitled, e.g. preferred nonvoting stock holders) –> a MAJORITY of ALL votes entitled to be cast needed (simple majority)
What is the difference between a simple majority vote and a 2/3 vote for a sample size of 10?
Simple Majority: More than half (6 out of 10).
*2/3 Majority: At least two-thirds (7 out of 10)
*2/3 is 2/3 x 10 = 6.67 but round up to 7 cause u cant have .33 of a person
Can shareholders enter into an agreement to absolve directors from all personal liability?
NO
S/Hs may enter into agreements regarding the exercise of the corporate powers or the management of the affairs of the corporation?
Yes
Shareholders may enter into agreements regarding the following:
- authorizing a particular shareholder to manage the affairs of the corporation
- requiring dissolution of the corporation at the request of one of the shareholders
or * eliminating the board of directors
When the board of directors forms a committee to investigate whether a shareholder derivative action was in the best interest of the corporation, the committee must have at least _____ director-members for a court to dismiss the action based on the committee’s recommendation.
TWO
The board of directors may act through one or more committees.
Each committee must be composed exclusively of _______ directors.
one or more
*EXCEPT in cases where the committee is created to investigate whether a shareholder derivative action was in the best interest of the corporation –> need at least TWO
Does quorum apply for the vote on the create of a special litigation committee?
No. The quroum requirement does not apply.
Other meetings the quoroum does apply (majority of BOD must vote on issue)
If transaction price of corp buying asset from a director exceeds the FMV, it is not fair to the corp as director derives an improper personal benefit from the transaction
and it thus violates the director’s duty of loyalty
UNLESS
a director does not derive an improper personal benefit from a transaction if:
- the transaction and the nature of any personal benefit derived by the director are not prohibited by state or federal law or regulation
AND - either
(1) the transaction and the nature of any personal benefits derived by the director are DISCLOSED/KNOWN to all directors voting on the matter, AND the transaction was approved by at least 2 directors who comprise a majority of the DISINTERESTED directors
OR
(2) the transaction is fair to the corporation AT THE TIME IT WAS AUTHORIZED/RATIFIED
can directors vote to move to remove other directors?
No. Only 1) S/Hs or 2) By circuit court in a judicial proceeding by or for the corporation
True or False?
Shareholders are entitled to notice of the purpose of a meeting called to consider the removal of a director.
A director is not entitled to notice as to the PURPOSE of a regular meeting of the board of directors.
TRUE
A shareholder of a professional corporation is ____ liable for the malpractice of an employee on the grounds of being a shareholder.
NOT
The professionals are only liable in their professional capacities for the malpractice
A professional corporation’s name must contain:
– the word “chartered,”
– the words “professional association,”
– the abbreviation “P.A.”
OR
– the designation “PA.”
Regular board meetings require no notice
Special board meetings require
Provide at least 2 days written notice of the date, time, and place of the meeting.
Proxies are generally revocable unless
1) the proxy states that it is irrevocable and
2) the person with the proxy has an interest in the shares.
When is a quorum needed at a shareholder meeting?
Quorum is needed at the beginning of a shareholder meeting,
NOT when the vote takes place
For director meetings a quorum must be present at the time the
vote takes place,
NOT necessarily at the start of the meeting
(opposite of S/H meeting)
