FL Corporations Flashcards
Can a New York corporation be the incorporator of a FL corporation? Can Joan Rivers?
Yes; Yes
Articles of Incorporation: 4 Mandatory Provisions
(1) Name and address of corporation
(2) Name and address of each incorporator
(3) Name and street address of registered agent/office
(4) Number of authorized shares
Can I form a corporation named Sokko’s Donuts?
No - name has to include “corporation,” “company,” or “incorporated” (or abbreviation)
What if a corporation has a narrow purpose clause (e.g., “to sell donuts”) but it later sells Gilbert’’s Outlines too?
This is an ultra vires act. Ultra vires acts are valid, but:
(1) Shareholder or state can seek injunction to stop; and
(2) Officers & directors are personally liable for ultra vires losses they cause
Filing is conclusive proof a corporation was fuly formed in accordance with the law.
De jure corporation
If not filed, the corporation risks administrative dissolution.
Annual report
Need a good faith attempt to form a corporation, and an act on the corporation’s behalf. Almost as good as de jure.
De facto corporation
Ryan Tannehill mailed articles to the Department of State. A week later, he contracts for the firm. The articles had not been filed; they got lost in the mail.
Are the shareholders liable on the contract?
What if one of the shareholders knew that the articles had not been filed?
No because there was a good faith attempt to comply with the statute. (So shareholders shouldn’t be punished).
Shareholder who knew that the articles had not been filed woudl be liable (only protects the innocents).
A person who deals with a business as if it were a corporation may be ________ from later arguing that it is not a corporation.
Estopped
Corporation by estoppel
De Facto Corporation and Corporation by Estoppel protect shareholders only against _________ claims.
Contract
Contain matters of internal governance, like the VP’s duties, meeting dates, etc.
By-laws
Who may adopt the initial by-laws, unless that power is reserved to the shareholders in the articles?
Either the incorporator or the directors
Who may amend the bylaws, unless that power is reserved the shareholders in the articles or by the shareholders themselves in amending a particular by-law?
Either the directors or the shareholders
Which controls if there is a conflict between the bylaws and articles?
Articles
A person acting for a corporation before it has been formed. Owe fiduciary duties to the corporation and cannot make a secret profit on their dealings with the corporation.
Promoter
Liability on pre-incorporation contracts:
The corporation is NOT liable unless it ADOPTS the contract as its own, either expressly (board passes a resolution) or impliedly (corporation knowingly accepts the benefit of the contract).
Don Shula, a promoter for a corporation not yet formed, leases space and signs the lease “Invisible, Inc.” Later on, Don forms Invisible, Inc. Is Invisible, Inc. liable on the lease?
Not automatically. Only if it adopts as its own.
Don Shula, a promoter for a corporation not yet formed, leases space and signs the lease “Invisible, Inc.” Later on, Don forms Invisible, Inc. and Invisible, Inc. moves into the space knowing of the lease. Is Invisible, Inc. liable on the lease?
Yes. Impliedly adopted lease by conduct.
The promoter remains liable on a contract unless there’s a _________.
Novation (where the corporation, promoter and the third party agree to substitute the corporation for the promoter as the one liable on the contract).
Don Shula, a promoter for a corporation not yet formed, leases space and signs the lease “Invisible, Inc.” Later on, Don forms Invisible, Inc. and Invisible, Inc. moves into the space knowing of the lease. Is Don still liable if Invisible, Inc. is formed and adopts the lease as its own?
Yes. All adoption means is that the corporation is liable too!
A corporation organized under the laws of any jurisdiction other than Florida.
Foreign Corporation
A foreign corporation transacting business in FL must ____ to do business here.
Qualify
Engaging in intrastate (completely within FL) transactions in FL on a regular basis.
“Transacting Business”
Note: Interstate business is NOT enough
Get a certificate of authority from Department of State. Must provide info from articles and be in good standing in home state.
“Qualify”
Note: Once it qualifies, a corporation must have a registered agent.
Corporation is subject to civil fines and cannot bring suit in a FL court without getting a _____________ and ________________.
Certificate of authority; paying any fines due
NOTE: Can be sued
Nerd Co., a Delaware corporation, sold goods on one occasion to a buyer in Miami, but had no other contacts with FL. Which of the following statements is true?
(A) Nerd Co. is not a foreign corporation with respect to FL corporate law
(B) Nerd Co. may be sued in a FL court only if it has qualified to transact business in FL
(C) Nerd Co. may bring suit in a FL court only if it has qualified to transact in FL
(D) Nerd Co. may bring suit in a FL court without qualifying to transact business
(D) Nerd Co. may bring suit in a FL court without qualifying to transact business
Because not transacting business per definition (& does not have to qualify to be able to bring suit).
When a corporation sells its own shares.
Issuance
McLovin sells 3,000 shares of Anheuser-Busch, Inc. Is this an issuance?
No - not an issuance when a shareholder sells shares (only corp)
Number of shares a corporation actually sells.
Issued Shares
Issued shares the corporation has not reacquired (so they are still in the hands of shareholders)
Outstanding shares
Irrevocable for 6 months unless the subscription provides otherwise or all the subscribers consent.
Pre-incorporation subscription
Revocable until the board accepts.
Post-incorporation subscription
A subscription is enforceable _______________. The corporation may sue the subscriber or sell the shares to someone else if payment is not made within 20 days after the corporation makes a written demand.
Once the board accepts it.
To form a corporation, one or more incorporator(s) must:
(1) Submit articles of incorporation to the Department of State. Corporate existence beings when the Department of State files the articles.
(2) Hold organizational meeting to elect directors; then either the incorporators or new directors elect officers and adopt by-laws.
True or false: The corporation may reject a subscription.
True.
NEVER obligated to accept.
Kirsty Alley gives Jenny Craig, Inc., a promissory note for 1,000 shares of its stock. OK?
Problem? Might not pay BUT in FL this is valid consideration (ANYTHING of value).
Corporation can put shares in escrow account until Kirsty pays off the note.
Minimum issuance price, not fair market value.
Par Value
FL eliminated mandatory par value, but a corporation may still elect to have par value for shares.
C Corp. sells 100 shares of $3 par value stock. How much consideration must C Corp. receive?
AT LEAST $300 (can get more, but not less)
C Corp. sells 100 shares of $3 par value stock to Alicia Florrick for $5 per share (a total of $500).
$300 is stated capital: aggregate par value for the issued shares
$200 is capital surplus: extra $ Alicia paid corporation for shares over and above par value.
Madonna deeds her cottage in Key West to C Corp. for 1,000,000 shares of $3 par stock. OK?
Yes, as long as cottage is worth at least $3 million.
C Corp. issues 10,000 shares of $3 par stock to Alicia for a ring worth $22,000 [less than PV]. C Corp. wants the $8,000 of “water.” Can C Corp. recover $8,000 from Alicia? From the directors?
ONLY if there was fraud (otherwise not from either).
Alicia has watered stock liability, but sells the stock to Kalinda. Kalinda did not know Alicia paid less than par value (“BFP”). From whom can C Corp. recover the $8,000 “water”?
(A) Kalinda alone
(B) Alicia alone
(C) Neither Kalinda nor Alicia
(D) Both Kalinda and Alicia
(B) Alicia alone
BFP of watered stock is not liable but the original shareholder is.
Shares reacquired by the corporation. They may be cancelled or resold for any price since par value provisions do not apply (they have already been issued).
Treasury Shares
Lets a shareholder maintain her percentage ownership interest in the corporation when new shares are issued for money. They protect against dilution.
Preemptive Rights
Lord Grantham owns 1,000 of the 5,000 outstanding shares of C Corp. [that’s 20%]. C Corp. plans to issue 3,000 new shares for cash. Does Lord Grantham have preemptive rights?
Only if articles provide for them.
Lord Grantham owns 1,000 of the 5,000 outstanding shares of C Corp. [that’s 20%]. C Corp. plans to issue 3,000 new shares for cash. If C Corp’s articles do provide for preemptive rights, what is Lord Grantham entitled to do?
Can buy 20% of 600 of preemptive shares so he maintains the same percentage of ownership.
Statutory Requirements of Directors
(1) One or more natural persons, at least 18 years of age;
(2) Shareholders elect directors at an annual meeting;
(3) Shareholders may remove directors with or without cause unless the articles say directors may be removed only for cause.
Preferred shareholders of Y Corp. are entitled to elect one director. Can Y Corp’s common shareholders remove the director elected by the preferred shareholders form the board?
No - different class of shares (elected by one can’t be removed by the other)
Who may fill a vacancy on the board?
Either the directors or the shareholders, unless the articles provide otherwise.
Unless ______ directors consent __________ a meeting is required. A conference call qualifies if all directors can hear each other simultaneously.
All; in writing
Notice is only required for __________ meetings.
Special
Must give 2 days’ notice
Quorum: A majority of all directors on the board unless a __________ number is required in the articles or by-laws or a __________ number is specified in the articles (minimum is 1/3).
Greater; lesser
M Corp. has 15 directors. Its by-laws required 40% of the directors to be present for a quorum. Seven directors are present at a meeting. Is there a quorum?
No because a lesser # has to be in the articles. Putting it in the by-laws is no good, so fall back to default rule which is majority (8/15).
A director can break a quorum, so you need a quorum _________________.
Each time a vote is taken
The affirmative vote of a majority of directors present is needed to pass a resolution, unless the articles or by-laws require a ________ number.
Greater
M Corp. has 15 directors. Its articles and by-laws are silent on quorum and voting requirements for directors. Eight directors are present at a board meeting. Five vote in favor. Did the resolution pass?
Yes. The default rule is that quorum is a majority (8/15). Need a majority of these 8 to vote in favor (5/8).
Set corporate policy, supervise officers, declare dividends, recommend fundamental changes, etc.
Directors
A committee ______ amend bylaws; fill vacancies; or authorize the issuance/sale/reacquisition of shares except within limits set by board.
Cannot
Otherwise, delegation is ok.
Duty of Care: A director must act with the care that an ________________ would exercise in a like position under similar circumstances.
Ordinarily prudent person
A director does nothing
Nonfeasance
A director of Nike, Inc. fails to attend board meetings. Has he breached his duty of care?
Yes. A prudent person would show up once in a while, but hard to show causation for liability (so there is a breach but not necessarily personally liable).
A director does something that causes the corporation a loss.
Misfeasance
In 2010, the directors of Nike, Inc. hired Joe Paterno to be Nike’s spokesman. Profits tanked in the wake of the Penn State scandal. Did the directors breach their duty of care in hiring Joe Pa?
No because protected by the business judgment rule.
Don’t have to be right, just careful… court won’t second-guess unless there is gross negligence
Duty of Loyalty: A director must act _________ and with a reasonable belief that what she does is ____________________.
In good faith; in the corporation’s best interest
Where a director is on both sides of a transaction.
Interested Director Transaction
Donald Trump is a director of NBC, Inc. Donald also rents space to NBC, Inc. Is that bad?
Not necessarily (may even benefit corporation), but there is a potential for abuse.
An Interested Director Transaction can be set aside unless the interested director shows that the transaction was _______________ or was ________ by a majority of all disinterested directors or shares (not just those present at the meeting) after _____________ of all material facts.
Fair to the corporation; ratified; the full disclosure
Interested director can show up at the meeting, and even vote, but ________________.
His vote is ignored
NBC, Inc. has 7 directors. 4 are interested in the deal. Of the 3 disinterested directors, 2 vote to approve the deal and 1 votes against it. Can the deal be set aside as an Interested Director Transaction?
No, as long as there is full disclosure of all material facts. The majority of the disinterested directors voted for it.
Mike Tyson and Darth Vader are directors of a motivational firm called Nice Guys Finish Last, Inc. Can Mike start his own motivational firm across town?
No. They are fiduciaries so almost any competition is bad.
A director cannot usurp an opportunity the corporation _______________ without full disclosure and board approval.
Might be interested in
JR is a director of circle C Realty Corp., which develops condo projects. JR learns of some land that’s been zoned for condos and buys it for himself.
Is this a corporate opportunity?
If so, what are Circle C’s remedies?
Yes it is a corporate opportunity.
Circle C either gets the land at JR’s cost OR the profits (benefits of JR’s transaction).
Directors are liable for ____________ losses they cause.
Ultra vires
Loans to directors are allowed if the board reasonably expects the corporation to benefit. They are treated as ________________________.
Interested director transactions
Is a dissenting director liable?
Not liable if his vote is recorded in the minutes.
Is an absent director liable?
No
Directors may rely ____________ on the book value of assets; on the opinoin of, or information provided by, competent officers, employees or professionals; and on financial statements prepared by auditors.
In good faith
“Raincoat” Statute: Directors are ________ for damages for breaching the duty of care or loyalty ____________ violated criminal law; received an improper personal benefit; authorized an unlawful dividend; or engaged in reckless or willful misconduct. This immunity is effective even against 3rd parties!!
Not liable; unless they also
Officers are corporate __________.
Agents
Are there particular officers required?
No, and anyone can hold multiple offices.
