FL - Corporations Flashcards
NATURE AND ADVANTAGES OF THE CORPORATION
Obligations To State
Annual Report
Every domestic corporation and foreign corporation qualified to do business in Florida MUST file an annual report with the dept of state disclosing:
(i) the CORPORATION’S NAME and the state or county of incorporation;
(ii) the DATE OF INCORPORATION, or if a foreign corporation, the date admitted to do business in this state;
(iii) the ADDRESS OF ITS PRINCIPAL OFFICE and the mailing address of the corporation;
(iv) its FEDERAL EMPLOYER IDENTIFICATION NUMBER;
(v) the NAMES AND BUSINESS STREET ADDRESS OF ITS PRINCIPAL OFFICERS AND DIRECTORS; and
(vi) the street ADDRESS OF ITS REGISTERED OFFICE AND NAME OF ITS REGISTERED AGENT at that office
Note: a corporation that fails to file an annual report is barred from bringing or defending any action in the Florida courts until the report is filed, and is also subject to involuntary dissolution. The dept of state may prescribe the use of the uniform business report of annual reports.
CORPORATE POWERS AND LIABILITIES
Corporate Powers
Statutory Powers
** To LEND MONEY to and use its credit to assist its officers and employees when such may reasonably be expected to benefit the corporation
** a Not For Profit corporation is not allowed to Loan Money
CORPORATE POWERS AND LIABILITIES
Ultra Vires Doctrine
The actions or contracts of a corporation are said to be “ultra vires” when they are BEYOND the powers expressly conferred on the corporation by law or its charter or implied from its stated purposes.
Ultra vires acts should be distinguished from illegal acts or acts that, although within the powers of the corporation, have been exercised in an improper or unauthorized manner.
CORPORATE POWERS AND LIABILITIES
Ultra Vires Doctrine
Modern Statutes
Exceptions : Against Officers or Employees
Like the Model Act, the Florida Statute permits the corporation (either directly r derivatively by its shareholders) to bring suit against the incumbent or former officers, employees or agents to recover damages for past ultra vires acts resulting in loss or harm to the corporation. They may also be enjoined from doing any ultra vires act in the future.
FORMATION
Contents of Articles
Mandatory Provisions
The Articles must be in WRITING and contain the following elements:
(i) The NAME of the corporation, which must be distinguishable from all other entites authorized to do business in Florida and must contain the word “corporation” “company” “incorporated” or the abbreviation “corp.” “co.” or “Inc.” to clearly indicate that its a corporation.
Note : a name is not considered distinguishable merely because of punctuation or because it contains an abbreviation sufficient, plural or the word “and”
(ii) the aggregate NUMBER OF SHARES that the corporation is authorized to issue;
(iii) if shareholders are to be given PREEMPTIVE RIGHTS to acquire shares issued subsequently by the corporation, a provision setting forth the extent of such rights must be included. In the absence of any provision in the articles, shareholders h nave no preemptive rights;
(iv) the street address of the corporations INITIAL REGISTERED OFFICE in FL and the name of its initial registered agent, together with the agents written acceptance
(v) the NAMES AND ADDRESSES OF THE INCORPORATIONS ; AND
(vi) the street ADDRESS OF THE INITIAL PRINCIPAL OFFICE, if known and if different the mailing address of the corporation
FINANCE
Capital Structure
Authorized Capital
Common Stock
A corporation must have at least one class of common stock, since it represents the residual ownership and claim to assets upon liquidation. It may either be voting or nonvoting.
FINANCE
Capital Structure
Authorized Capital
Preferred Stock
Standing alone the term “preferred” is meaningless, it must be viewed in relation to its preference or priority as to dividends and as to assets at liquidation. Preferred stock may be either voting or nonvoting and may include a variety of preferences. The precise mature and terms of such preferences must be (i) stated in the articles of incorporation and (ii) either set forth or summarized on the stock certificates
FINANCE
Capital Structure
Authorized Capital
Preferred Stock
Liquidation Preference
On liquidation, the preferred shareholders are usually accorded the right to receive a state value for their shares, plus any accumulated but unpaid dividends, before the common shareholders receive anything on their shares
FINANCE
Agreements to Buy Stock
Unless revered to shareholders in the articles, the board of directors decides when and how many f the shares authorized in the articles shall be issued, as well as the subscription price, method of issue, and to whom the shares will be sold. In exercising its discretion, the board is limited by a number of legal requirements.
FINANCE
Agreements to Buy Stock
Subscription Agreements
A subscription agreement is a contract by which the subscriber agrees to purchase a certain number of shares of stock of the corporation at the subscription price specified in the agreement.
How to raise money for corporations..
FINANCE
Agreements to Buy Stock
Subscription Agreements
Revocability
Common Law and FL Statute
Common Law: preincirporation subscription agreements, in the absence of statute, are usually revocable until adopted by the corporation after its formation, unless more than one subscriber is party to the agreement, in which case some courts hold the agreement enforceable on the theory that the mutual subscriptions provide adequate consideration.
FL Statute: The flrohia statute provides that a written reincorporation agreement is irrevocable for 6 months unless provides otherwise, or unless all the subscribers consent to revocation
FINANCE
Agreements to Buy Stock
Preemptive Rights
To protect shareholders from dilution of their propoertionate interest in the corporation, the courts developed the doctrine of preemptive rights. The problem of dilution is especially critical in the close corporation where propoertional ownership is delicately balanced and is likely to affect control. Under the FL statute, shareholders have NO PREEMPTIVE RIGHTS to acquire unissued shares or treasury shares unless and only to the extent that such rights are expressly provided in the articles of incorporation.
Basically a right of first refusal.
FINANCE
Financial Assets – UCC Article 8
Restrictions on Transfer of Stock
Restrictions on Sale must Be Reasonable
It is quite common in close corporations to have buy-sell agreements and agreements giving a right of first refusal on the sale of stock. Generally, restrictions on the sale of stock will be enforced as long as they are REASONABLE. It has been held unreasonable to require written permission to transfer stock. By statute, every certificate representing shares that are restricted as to sale, disposition, or other transfer must set forth or summarize such restriction or state that the corporation will furnish a full statement thereof.
INTRACORPORATE GROUPS
Promoters
Definition of Promoter and Incorporator
A PROMOTER is a person who undertakes to form a corporation and to procure for it the rights, capital, labor, facilities, and other necessities to carry out the purposes set forth in its charter and to establish it as fully able to do its business.
Normally, attorneys and other individuals acting in a professional advisory capacity are NOT considered promoters of the corporation. Promoters often act as incorporate; however, this is not necessary to make one a promoter. (An INCORPORATOR is one who signs the articles of incorporation)
INTRACORPORATE GROUPS
Promoters
Contracts on Behalf of the Corporation
Prior to incorporation the corporate entity does not exist; hence, it is not bound on reincorporation contracts entered into by the promoters on behalf of the corporation or in its name.
The promoters, on the other hand, are bound by such contracts; all persons purporting to act as or on behalf of a corporation having actual knowledge that there is no incorporation under Chapter 607 are JOINTLY AND SEVERALLY LIABLE for ALL liabilities created while so acting, EXCEPT for liabilities created as to personals having ACTUAL knowledge that no incorporation took place. However, the corporation may become liable on promoters’ contracts by “adopting” them. (There can be no “ratification in the technical agency sense since the promoters cannot be agents of a nonexistent principal.)
INTRACORPORATE GROUPS
Shareholders
Management Rights
Although the shareholders collectively own the corporation they have virtually NO power to control directly the day-to-day management of corporate affrays. This power is normally vested in the board of directors.
However, the FL statute, like the Model Act, provides that this norm may be aries in the articles by vesting power of management in the shareholders. Shareholders also have several indirect methods to attain their goals:
(i) election of directors
(ii) approval of amendments to articles
(iii) approval of certain fundamental changes such as merger, sale of assets, or dissolution
(iv) amendment of bylaws when provided by the articles
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Annual Meeting
An annual meeting of the shareholders is held for the election of directors and such other business as may be necessary or appropriate. If the annual meeting is not held within any 13 month period, any shareholder may apply to the court for an order requiring the meeting to be held
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Attendance Via Remote Communication
If authorized by the BOD, shareholders and proxy holders not physically present at an annual meeting may participate and may be deemed present and vote by means of remote communication. the same is true for special meetings.
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Special Meetings
Special meetings of the shareholders may be called for any appropriate purpose by the BOD, the holders of at least 1/210 of all the outstanding voting shares or such other persons may be authorized in the articles or bylaws. Only business within the purpose or purposes described in the notice may be conducted.
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Notice
Write notice, including the purpose of special meetings, must be given at least 10 DAYS in advance to each shareholder of record entitled to vote at the meeting. Notice may be given either personally or by mail to the shareholder’s record address. No further notice is necessary in the event of adjournment.
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Record Date
The day on which eligibility to vote is determined is known as the record date. The record date is fixed by the BOD and may NOT BE MORE THAN 70 DAYS PRIOR to the meeting. After the record date, the stock transfer books are closed until the meeting, and the list of eligible voters is determined. If no record date is fixed by the board, the close of business on the date before the first notice is delivered to the shareholders is the record date.
*10 days before
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Voting List
Must be provided at least 10 days before each shareholder’s meetings
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Proxies
Every shareholder entitled to vote may authorize another person to act for him by written proxy. A shareholder may apprint a proxy by signing an appointment form or transmitting a telegram or other electronic communication.
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Proxies
Revocation
Proxies expire after 11 MONTHS UOA.
Revocable at pleasure of the shareholder unless the proxy provides it is irrevocableAND the pr proxy holder has an interest in the shares. A proxy may be revoked even if otherwise irrevocable by a bona fide purchaser of the shares without notice of the proxy
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Election of Directors
Election of directors is by PLURALITY (51%) vote of the shareholders unless the articles provide for cumulative voting. The bylaws have shares listed on National Securities exchange at the time of adoption may fix a greater voting requirement for he election of directors. Such a bylaw provision or amendment adopted by shareholders may not be further amended or repealed by the BOD
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Election of Directors
Cumulative Voting
The articles may provide for cumulative voting. This is intended to aid minority shareholders in obtaining some representation on the BOD.
DEFINITION: Cumulative voting 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 case his votes for any one candidate or divide them among any number of candidates.
INTRACORPORATE GROUPS
Shareholders
Shareholder’s Meetings
Election of Directors
Fundamental Changes
Amendments to the articles of incorporation, merger, share exchange, sale of substantially all corporate assets or dissolution must normally be approved by the shareholders. Whenever an amendment, plan of merger, or consolidation contains a provision hat adversely affects the shares of a particular class in the manner enumerated in the statute, the holders of each such class are entitled to vote separately as a class on the amendment whether or not the class is entitled to vote by the terms of the articles and the amendment must be approved by the ABSOLUTE MAJORITY of each such class and the total shares entitled to vote
non vote = no except when fundamental changes affect our stock
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Dividends
Legality of Payment
The florida statute sets forth 2 standards (solvency tests) for payment of dividends, BOTH of which must be met in every instance :
(i) equity test
(ii) balance sheet test
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Dividends
Legality of Payments
Equity Test
The first standard is the traditional equity or cash flow test. A dividend 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
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Dividends
Legality of Payments
Balance Sheet Test
The second standard is the so-called bankruptcy or balance sheet test.
Dividends are limited to the amount by which TOTAL ASSETS of the corporation EXCEED the sum of the TOTAL LIABILITIES and the LIQUIDATION OF PREFERENCES of preferred shares.
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Dividends
Liability for Improper Dividends
Directors
Directors who willfully or negligently vote to declare dividends are personally liable to the corporation to the extent of the amount paid improperly
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Dividends
Liability for Improper Dividends
Shareholders
Any dividends paid while the corporation is insolvent constitute a fraudulent conveyance and shareholders are directly liable to corporate creditors for the amount of the dividends received, WHETHER OR NOT THEY KNEW the corporation was insolvent. Liability for contribution to a director may exist if the shareholder received the dividend knowing that it was improper.
Give back $$
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Right to Inspect Books and Records
Statutory Right to Inspection
Inspection for Proper Purpose
ANY SHAREHOLDER may inspect and copy the following records of the corporation if he gives the corporation written notice of his demand at least 5 BUSINESS DAYS before the date on which he wishes to inspect and copy and (i) his demand is made in GOOD FAITH and for a PROPER PURPOSE; (ii) he DESCRIBES with reasonable particularity his PURPOSE and the records he desires to inspect and (iii) the records are DIRECTY connected with his purpose :
accounting records
records of shareholders
PROPER PURPOSE: related to such person’s interest as a shareholder i.e., value of his stock or availability of a property fund for the dividends
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Shareholder Derivative Suits
A derivative suit is brought by a shareholder to enforce a corpora cause of action when the BOD for some reason has NOT sought to enforce the corporation’s rights
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Shareholder Derivative Suits
Conditions for Bringing Derivative Actions: demand & prior ownership
Demand: the plaintiff’s shareholders complain must be verified and allege with particularly the demand made to obtain action by the board. the complaint must also allege that the demand was refused or ignored by the board for at least 90 days from the first demand unless, prior to the 90 day expiration, the person was notified in writing that the demand was rejected or unless irreparable injury would result by waiting for the 90 day expiration period
Prior ownership: the shareholder must have owned stock in the corporation at the time of the alleged wrong took place, or the shares must have devolved upon him by operation of law.
INTRACORPORATE GROUPS
Shareholders
Shareholder Rights
Shareholder Derivative Suits
Dismissal by Corporation
On motion by the corporation, the court may dismiss a derivative proceeding if the court finds that one of the following groups has made a good faith determination, after condign a reasonable investigation that maintenance of the derivative suits is not in the best interests of the corporation:
(i) MAJORITY VOTE OF INDEPENDENT DIRECTIONS, if constitute a quorum;
(ii) MAJOIRTY VOTE OF A COMMITEE consisting of 2 or more independent directors appointed by majority vote of the independent directors or
(iii) a PANEL OF ONE OR MORE INDIVIDUAL PERSONS APPOINTED BY THE COURT
INTRACORPORATE GROUPS
Board of Directors
The corporation is managed by the BOD UOP in article or an agreement authorized by the shareholders in a close corporation. The shareholders have no right or power to manage the business directly although they pay be vested with management powers by the articles
INTRACORPORATE GROUPS
Board of Directors
Number and Qualification of Directors
Minimum 1
Directors must be 18 years of age or older but DO NOT have to be residents of FL or shareholders of the corporation unless the articles or bylaws so require.
INTRACORPORATE GROUPS
Board of Directors
Cumulative Voting
Cumulative voting is NOT mandatory in FL but may be provided for in the articles
INTRACORPORATE GROUPS
Board of Directors
Removal
UOP, directors may be removed at any time WITH or WITHOUT CAUSE
If elected by a class of stock, they may be removed ONLY by vote of that class
If the corporation has cumulative voting, a director may not be removed if the votes cast against her removal would be sufficient to elect her at an election of the full board
INTRACORPORATE GROUPS
Board of Directors
Meetings
Directors are required to meet and act as board. As long as they act within scope of their authority, their acts are binding upon the corporation and its shareholders. in the absence of waiver or ratification by shareholders, a single director has NO authority to act as a representative of the corporation or bind it by its acts.
INTRACORPORATE GROUPS
Board of Directors
Meetings
Time and Place Requirements
Anywhere
Special meetings may be called by chairman of the board or president UOP
INTRACORPORATE GROUPS
Board of Directors
Meetings
Phone Conference Meetings Valid
Directors may participate in a meeting by means of conference telephone or similar and that such participation constitutes personal presence at meeting
INTRACORPORATE GROUPS
Board of Directors
Meetings
Notice
Meetings need not be formal and NO NOTICE of REGULAR meetings is required.
UOP, written notice of SPECIAL MEETINGS must be given at least 2 days before the meeting. Notice can be delivered by mail or personally and need not spicy the purpose of the meeting.
INTRACORPORATE GROUPS
Board of Directors
Meetings
Quorum
UOP, A MAJORITY OF THE TOTAL NUMBER OF DIRECTORS AUTHORIZED (COUNTING VACANCIES AS ABSENT) IS NECESSARY TO CONSTITUTE A QUORUM.
Aarticles may authorize a quorum to of less than a majority but no fewer than 1/3 of the prescribed number of directors determined under articles or bylaws
FUNDAMENTAL CHANGES
Amendment of Articles
A corporation may amend its articles of incorporation at any issue. Amendments may include any provision that would be lawful and proper to include in original articles AT THE TIME OF MAKING THE AMENDMENT, thereby permitting existing corporations to take adv of changes in the law.
FUNDAMENTAL CHANGES
Amendment of Articles
Procedure – Shareholder Approval
Amendments must normally be proposed by the board. the board must recommend the amendment to the shareholders unless the board determines that because of conflict of interest or other circumstances it should make no recommendation and communicates the basis of its determination to the shareholders. the board may condition its submission of a proposed amendment on any basis.
FUNDAMENTAL CHANGES
Amendment of Articles
Procedure – Shareholder Approval
Vote Required
Unless the articles or statute require a greater proportion or the board conditions approval upon a greater vote or a vote by voting groups, the amendment must be approved by:
a MAJORITY of the votes entitled to be cast on the amendment by any voting group AND
the votes required by every other voting group entitled lot vote on the amendment
FUNDAMENTAL CHANGES
Protection against Limitations on Fundamental Changes
Who may dissent?
Exceptions
Appraisal rights are not available for holders of any class or series of shares that :
(i) is traded on a national securities exchange OR
(ii) has at least 2K shareholders and the outstanding shares of the class or series have a market value of at least 10M
FUNDAMENTAL CHANGES
DIssolution
Involuntary Liquidation and Dissolution
The legal Temriantion of the Corporate Entity
A FL corp may also be liquidated and dissolved involuntarily under judicial suppuration. The courts have full power to liquidate the assets and business of a corporation in an action :
(i) by a SHAREHOLDER when EITHER
(a) directors are deadlocked in management and shareholders are unable to breach the deadlock AND the corporation is suffering threatened irreparable injury; OR
(b) the shareholders are DEADLOCKED IN VOTING power and have failed to elect successors to directs whose terms have expired;
(ii) by a shareholder or group of shareholdrs in a corporation having 35 or fewer shareholders when
(a) the corporate ASSETS ARE BEING MISAPPLIED OR WASTED or are causing material injury to the corporation; OR
(b) the directors or those in control of the corporation have acted, are acting or are reasonably expected to act in an ILLEGAL OR FRAUDULENT MANNER
NOT FOR PROFIT CORPORATIONS
Formation
Contents of Articles of Incorporation
Provisions MUST SET FORTH THE PURPOSE
NOT FOR PROFIT CORPORATIONS
Formation
Directors
Loans to Directors
NO GO to directors or to any other entity in which one or more of its directors or officers is a director or officer or holds a substantial financial interest, except loans between certain corporations exempt from federal income tax
FOREIGN CORPORATIONS
Out of state of FL
(Out of state of FL)
FOREIGN CORPORATIONS
Penalties for Transacting Business Without Authority
Cannot bring suit
A foreign corp transacting business without authority cannot BRING suit in FL, until the corporation obtains authority. HOWEVER, the corporation is not barred from DEFENDING any action in FL
SERVICE OF PROCESS
Officers and Business Agents
Process may be served on a corporation by personalty serving any one of the following officers or agents. Service must be made on a person in (i) below if possible and only in their absence can service be had on a person in (ii) and so down the list:
(i) President, VP, or other head of corp; IF NO, THEN
(ii) Cashier, treasurer, secretary or GM; IF NO, THEN
(iii) any director; IF NO, THEN
(iv) any officer or business agent RESIDENT in FL
If a FOREIGN corp has none of the above persons in FL, process may be served on ANY agent transacting business for it within the state.
SERVICE OF PROCESS
Long arm Jurisdiction
Foreign Corporations NOT qualified to transact business in FL may nevertheless be subject to PJ in the FL courts. Depends on whether the statutes of the forum state assert jurisdiction over the corp and cause of action and if so if such assertion comports with constitutional due process
Service of Process
Long arm jurisdiction
Method of Service
the FL statutes provide for several methods of service of process on foreign corporations subject to jurisdiction under long arm statutes
Usual manner: process may be served on the corp by serving the same persons in the same order as provided for service of process on domestic and qualified foreign corps
Service outside state: process may be served n the corp by personally service outside the state of fl any one of the same persons who could be served in the state. such process may be served b any officer authorized to serve process in the state where served
substituted service: if and only if the foreign corp DOES NOT have a registered agent or resident officer in FL may process be served on the FL secretary of state
