FL Corporations Flashcards
Formation
INCORPORATORS: submit the Articles of Incorporation to the Department of State
- Hold an ORGANIZATIONAL MEETING
- elect directors
- elect officers
- adopt bylaws
- Incorporator: any entity or natural person
- doesn’t need to be a FL resident
De Jure vs De Facto
De Jure: conclusive proof of corporate existence upon filing of AOI = no personal liability
De Facto: Good Faith Attempt to Form Corp. + an Act on Corp.’s behalf = no personal liability
Corporation by Estoppel: when someone deals with the business as if it were a corp. -> they cannot raise a claim of no corp. existence
- no shareholder liability for contracts
Articles of Incorporation
MUST be included:
(1) Corporation NAME
(2) ADDRESS of INITIAL PRINCIPAL OFFICE
(3) ADDRESS of INITIAL REGISTERED OFFICE + NAME of REGISTERED AGENT + WRITTEN ACCEPTANCE
(4) NAME + ADDRESS of Each INCORPORATOR
(5) NUMBER of SHARES Authorized to Issue
Bylaws
Matters of internal governance
- Adopted by: incorporators or directors
- unless reserved to shareholders)
- Amended by: directors or shareholders
- unless reserved to shareholders
Conflict: AOI > Bylaws
Pre-Incorporation Contracts
All Persons Purporting to Act As, or On Behalf Of, a Corporation, KNOWING there was no incorporation = JOINTLY and SEVERALLY LIABLE.
Corporation is NOT liable - unless it adopts the contract:
- Express Adoption
- Implied Adoption - knowing acceptance of benefit
Promoter REMAINS liable – unless there’s a novation
General Corporate Powers
(1) Sue, be sued, and defend
(2) Corporate seal
(3) Purchase, receive, lease or otherwise acquire real and personal property
(4) Sell, convey, mortgage, pledge, create security interest in, lease, exchange, and dispose of all or any part of its property.
(5) Lend money + use its credit to assist its officers and employees
- Non-Profit Corporation – CANNOT do this
Ultra Vires Act
Lack of Power to Act
General Rule: CANNOT challenge a corporate act by claiming it did not have power to act.
Exception:
- Shareholder/State Lawsuit to Enjoin Corporation’s Act
- Officers/Directors Personally Liable in Direct/Derivate Action by the corporation for losses
Foreign Corporation
Corporation organized under laws of any jurisdiction other than FL
A foreign corp. transacting business in FL must QUALIFY to do business here.
- Transacting Business: Engaging in intrastate transactions in FL on a regular basis
- Qualify: Certificate of Authority from DoS
- AOI info +
- Good Standing in Home State +
- Registered Agent
Penalty: Civil Fines + Cannot BRING Suit in FL Court
Subscription Agreement
Contract to buy shares for a specified price
Must be:
(1) In Writing, and
(2) Signed by the Subscribed
Pre-Incorporation: Irrevocable for 6 Months
- unless agreement provides different period, or all subscribers agree to revocation
Post-Incorporation: Revocable until Acceptance (by BoD)
Enforceability: After Acceptance by BoD, Corporation may:
(1) Sue Subscriber, or
(2) Sell Shares if No Payment Within 20 Days of Written Demand
Issuance of Shares
Consideration + Par Value + Watered Stock
Issuance: Corporation Selling its Own Shares
By the BOD - unless reserved to shareholders in AOI
CONSIDERATION for Issuance: ANY tangible or intangible property or benefit to the corp.
- Any Tangible or Intangible Property
- Any Benefit to the Corporation: cash, promissory note, services performed, promises to perform services (must be a written contract), or other securities.
PAR VALUE: Minimum Issuance Price
- Must be Elected
- Paying with Property: BoD determines adequacy
- WATERED STOCK: paying LESS than par value for shares
- BoD NOT Personally Liable - unless KNOWING AUTHORIZATION
- Buyer IS Liable -> Subsequent BFP is NOT
Shareholder Preemptive Rights
MUST be ELECTED/STATED in AOI
Allows shareholder to keep their PROPORTIONAL AMOUNT of shares when corporation ISSUES shares
- NOT for unissued shares (UOI), reacquired shares
Shareholder Management
Only if:
(1) Stated in the AOI, or
(2) Unanimous Shareholder Agreement - only for private companies
Shareholder Special Meetings
May be held in or out of state, or fixed by bylaws or notice of the special meetings (as long as not inconsistent with bylaws)
- If no place stated in bylaws – hold at Corporation’s Principal Office
Called by:
(1) BoD,
(2) Holders of 10% Voting Shares, or
(3) As named in AOI or Bylaws
MUST Give: 10-DAYS NOTICE + PURPOSE
- Only business within the purpose noticed can be conducted
Court-Ordered Shareholder Meeting
RIGHT to Annual Shareholder Meeting
If Annual Meeting doesn’t occur within any 15-MONTH PERIOD -> Shareholders entitled to vote can petition Circuit Court to order a Shareholder Meeting
Shareholder Voting
Right to Vote: RECORD OWNER on RECORD DATE
- Record Date: NOT MORE than 70 DAYS BEFORE Meeting
- If Not Stated: close of business day the day BEFORE the first notice of meeting is delivered
- Death – record owner’s executor may vote the shares
- Proxy,
- Trust, or
- Agreement
No Meeting Needed if: Written Consents from Minimum Number of SHARES needed to take action where all shares entitled to vote on the action are Present + Voting
Written Notice of Meeting:
- Annual: 60-10 Days Before Meeting + When + Where
- Special: 60-10 Days Before Meeting + When + Where + Purpose
Improper Notice – actions at meeting are VOID
- WAIVER: signed writing or presence without objection
Majority or Controlling shareholders have a Fiduciary Duty: NOT to use their power to take UNDUE ADVANTAGE OF or OPRESS MINORITY SHAREHOLDERS.
- However, a person who acquires a controlling interest in a corporation may arrange for resignations of the current directors and for the appointment of directors who would ordinarily be electable by him.
Shareholder Quorum
MAJORITY of OUTSTANDING SHARES Represented at the Meeting
- Unless AOI states different amount (never less than 1/3)
- Determined at start of meeting
Election of Directors:
- PLURALITY: top vote-getters are elected
- (1) STRAIGHT-VOTING: (Default) can vote number of shares owned for as many persons as there are to be elected
- (2) CUMULATIVE-VOTING: multiply number of shares owned by the number of directors to be elected
- – To Elect One: More than S/(D+1)
Other Matters: approved if affirmative votes > negative votes
Shareholder Proxy Voting
Person entitled to vote can have a Proxy vote their shares
APPOINTMENT of a Proxy is EFFECTIVE when:
- Signed Appointment Form (or electronic transmission) is received by Secretary
VALID for:
- TIME STATED or UP TO 11 MONTHS
- Unless Irrevocable: Specifically Stated + Coupled with an Interest
- Exception: BFP w/o Notice
Shareholder Voting Trust
(1) Written Trust Document +
(2) Copy to Corp. +
(3) Transfer of Legal Title to Trustee
Irrevocable
Shareholder Voting Agreement
Signed Writing stating how shareholders agree to vote in advance
Enforceable Against Transferee with Knowledge or Conspicuously Noted on Shares
Shareholder Pooling Agreement
Two or more shareholders agree to vote their shares as all of them decide (or a majority of them decide).
Retain legal title to their shares.
Shareholder Derivative Action
Standing + Complaint + Dismissal + Costs + Settlement
Shareholder brings action against the corporation to enforce the rights of the corporation
Appropriate when the alleged harm was done primarily to the corporation rather than to the shareholders. Recovery in a derivative action is paid directly to the corporation.
Standing Requirements:
(1) Shareholder at time action is commenced, and
(2) Shareholder at time conduct giving rise to action occurred or by transfer/operation of law
Complaint – Must be Verified + Allege Particularly:
(1) Demand made on BoD, AND
(a) Demand was Refused, Rejected, or Ignored PRIOR to 90 DAYS of demand,
(b) Irreparable Injury to Corporation or Misapplication/Waste will occur within 90 days of demand, or
(c) Demand would be futile
Dismissal
- Committee has determined in Good Faith, after Reasonable Inquiry, that maintenance is Not in the Best Interests of the corporation.
- Group/Committee of disinterested directors
- Corporation has burden of proof regarding qualifications, good faith, and reasonable inquiry.
Costs – judge MAY require P to pay reasonable expenses upon finding that suit was without reasonable cause
Settlement – need court approval
Shareholder Direct Action
Shareholder brings action against the corporation to enforce their PERSONAL RIGHTS as a shareholder.
Must Plead + Prove:
(1) Actual or Threatened Personal Injury, or
(2) Actual or Threatened Injury Resulting from Violation of a Separate Statutory or Contractual Duty owed by the Wrongdoer to the Shareholder (even if same suffered by Corporation)
Shareholder sues corporate fiduciaries such as directors directly, with recovery going to the shareholders.
Shareholder’s Right to Inspect Records
Absolute Right + FL Statute + Proper Purpose
Absolute Right: 5 Days Written Notice + Regular Business Hours + Principal Office
(1) Articles
(2) Bylaws
(3) Shareholder Minutes
(4) Written Communications within Last 3 Years to Shareholders
(5) Names and Business Address of Current Directors + Officers
(6) More Recent Annual Report
- *Shareholder of FL Corp or Foreign Corp Authorized to Transact Business in FL: 5 Days Written Notice + Reasonable Location in FL specified by Corp:
(1) Bylaws
(2) Names and Business Addresses of Current Directors + Officers
5 Days Written Notice + Good Faith + Proper Purpose + Describes with Reasonable Particularity the Purpose and Records + Records are Directly Connected to Purpose:
(1) Board Minutes
(2) Financial Statements and Accounting Records
(3) Record of Shareholders
(4) Any other Books and Records
Grounds for Refusal:
(1) Within past two years offered to sell list of shareholders or helped another do so,
(2) Improperly used any info of any corporation,
(3) Not acting in good faith, or
(4) No proper purpose
Proper Purpose: Reasonably Related to shareholder’s interest as a shareholder
- Inspection sought for purpose of determining value of stock or availability of a proper fund for the payment of dividends
Piercing the Corporate Veil
Making Shareholders Personally Liable
(1) Alter Ego:
(i) Conduit for Personal Business Activities of Shareholders +
(ii) Improper Conduct - fraud or illegality
(2) Inadequate Capitalization
(3) Necessary to Prevent Fraud
(4) Deep Rock Doctrine: if corporation is undercapitalized – shareholder loans to corporation are subrogated to outside creditor’s payments first – looking for the corporation being insolvent or not able to pay all its debts
**Shareholder can only be personally liable if he knew there was no valid incorporation
Shareholder must:
(1) be the Alter Ego of the corporation,
(2) the corporate form must have been used Fraudulently or Improperly, and
(3) the claimant must have been Harmed thereby.
Directors
At least one
Natural Person and 18+
*Non-Profit Corporation: at least 3
Removal of Directors
Elected by: Shareholders at Annual Meeting by Plurality + Straight Voting
- Exception: Cumulative Voting: Number of Shares x Number of Directors to be Elected = Can vote them anyway
Grounds for Removal by Circuit Court:
(1) Fraudulent Conduct, Gross Abuse of Position, or Intentional Infliction of Harm on Corporation, AND
(2) Removal is in the Best Interests of the Corporation
Removal by Shareholders: with or without cause
Directors/Officers Compensation
Board fixes compensation of:
(1) Board, and
(2) Officers
* unless AOI/Bylaws
Florida courts will generally address issues of executive compensation by balancing various factors, including:
(1) the amount paid to comparable executives,
(2) the amount of time and energy needed to perform corporate responsibilities, and
(3) the executive’s professional background.
*Compensation for FUTURE services may be voidable if it is not conditioned on remaining with the corporation for a reasonable amount of time.
A court will normally NOT inquire into the fairness of an officer’s compensation.
- However, a court will REVIEW an officer’s compensation for FAIRNESS if the compensation was NOT APPROVED by informed, disinterested, independent directors (or by a majority of informed, disinterested shareholders).
Directors Meetings
Regular or Special Meetings: in or out of the state
Adjourned by: a Majority Vote of Director’s Present
Called by: Chair of the Board or President
- unless AOI/Bylaws
Can be by Conference Call: if all directors can simultaneously hear each other
Regular Meetings: NO NOTICE REQUIRED
- unless AOI/Bylaws
Special Meetings: 2 Days’ Notice + Time + Date + Place
- No Purpose Needed
Directors Quorum and Voting
Quorum: Majority of Number of Authorized Directors as specified in AOI/Bylaws (Unless AOI/Bylaws)
- Amount AUTHORIZED - not the actual amount of directors there are
- *Vacancies – directors or shareholders can fill a vacancy
Voting: Majority of the Quorum
- Majority of the Director’s Present
- No Proxy or Agreement
Directors Duties
DUTY OF CARE: act with the care of an ordinarily prudent person (unless professional)
- Reasonably informed of general nature/operation + provide general supervision over top management
Nonfeasance: doing nothing – liable if consistent + actual injury
Misfeasance: does something causing loss
BUSINESS JUDGMENT RULE:
- Rebuttable Presumption that Directors and Officers are better equipped than courts to make business judgments, because they are more intimately familiar with the corporation’s affairs.
- Mere errors in business judgment are NOT ACTIONABLE in themselves;
- NO Personal Liability or Judicial Review
(1) Disinterested +
(2) Acted in Good Faith +
(3) With Reasonable Diligence +
(4) Reasonable Belief in Best Interest of Corp.
- Standard: Gross Negligence
- Presumption Applies to Directors/Officer – unless:
(1) Fraud, Illegal, or Personal Interest,
(2) Lack of Rational Business Purpose, or
(3) Grossly Negligent and Uninformed
DUTY OF LOYALTY: act in good faith with reasonable belief that actions are in best interests of corporation
(1) INTERESTED DIRECTOR TRANSACTION: (voidable) can be set aside unless director shows it was fair to corp.
- Burden Shifts: if approved by majority of disinterested directors or a majority of disinterested shares
- Must Give: Full Disclosure of Material Facts + Conflict of Interest
(2) COMPETING VENTURE
(3) CORPORATE OPPORTUNITY – cannot usurp an opportunity acquired as a result of their position for personal gain corp. might be interested in
- unless: corporation declines after full disclosure or the corporation is clearly unable to exploit the opportunity
Officers may not exploit an opportunity acquired as a consequence of the officer’s corporate position for personal gain unless the corporation declines, after full disclosure, to pursue the opportunity, or is clearly unable to exploit the opportunity.
FL Director Immunity Statute
Directors are NOT LIABLE for DAMAGES of breach of fiduciary duty, unless they also:
(1) Violated Criminal Law,
(2) Received an Improper Personal Benefit,
(3) Authorized an Unlawful Dividend, or
(4) Reckless, Willful, or Intentional Misconduct
Removal of Officers
May be removed at any time with or without cause, by:
(1) Board of Directors,
(2) Appointing Officer (unless AOI/Bylaws), or
(3) Any other officer if authorized by bylaws or board
Officers
President, VP, Secretary, Treasurer
Appointed by: Board of Directors
Additional/Minor Officer: Appointed by President
Officers or Agents: Need EXPRESS or IMPLIED AUTHORIZATION to enter into transactions
Officers: IMPLIED Authority to enter into transactions that are REASONABLY RELATED to PERFORMING the DUTIES for which they are RESPONSIBLE.
President generally has the power to:
(1) Purchase Assets (for example, equipment or inventory);
(2) Sell Goods, Used Equipment, and Possibly Land, in the ORDINARY COURSE of BUSINESS;
(3) Hire Employees; and
(4) Establish Salary Levels.
Corporation can Repudiate a transaction entered into by an officer or agent who Lacked Proper Authority.
NO Authority to enter into contracts of Employment that extend BEYOND their own term of office
- if no term specified – not beyond the CURRENT BOARD of directors’ terms of office
Fundamental Changes
Voluntary Dissolution Involuntary Dissolution by Shareholders Appraisal Rights Amendment of Articles Failure to Have Certificate of Authority Annual Report Merger Share Exchange Sale of Substantially All Assets
Voluntary Dissolution
(1) Board of Directors Approval
(2) Absolute Majority (Majority of Shares Entitled to Vote)
*or written consent of absolute majority of shares
Involuntary Dissolution by Shareholders
Grounds:
(1) Director Deadlock in Management of Corporate Affairs + Shareholders are Unable to Break Deadlock, and
(a) Irreparable Injury to Corporation
(b) Business/Affairs can no longer be conducted to advantage of shareholders because of deadlock
(2) Shareholder Deadlock in Voting Power + Failed to Elect Successors to Directors whose terms have Expired or would have expired upon qualification of their successors;
(3) Corporate Assets are being Misapplied or Wasted + Causing Material Injury; or
(4) Directors (or those in control) are acting/acted/will act in Illegal or Fraudulent Manner
Judicial Dissolution of a close corporation (corporation with 35 or less shareholders) is warranted if:
(1) the corporate assets are being misapplied or wasted, causing material injury to the corporation; or
(2) the directors or those in control of the corporation are acting or have or may act in a manner that is illegal or fraudulent.
Appraisal Rights
Shareholders who don’t approve of fundamental changes may have a right to compel corp. to buy their shares back at Fair Value
NOT for:
(i) Publicly Traded, or
(ii) Marker Value of $10M+ and 2k shareholders
Procedure:
(1) Written Notice of Intent +
(2) Abstain/Vote Against +
(3) Written Demand for Payment
Amendment of AOI
Approval by:
(1) BoD +
(2) Absolute Majority (Shares Entitled to Vote)
NO SHAREHOLDER VOTE NEED FOR:
(i) Extending duration of corporation,
(ii) Deleting names of initial directors,
(iii) Making changes to corporate name.
Failure to have Certificate of Authority
CANNOT sue or maintain an action or proceeding in FL until it obtains a COA
CAN DEFEND a lawsuit in FL
CAN CONTRACT in FL
Annual Report
Each FL + Foreign Corporation Authorized to Transact Business in FL has to file Annual Report
If NOT FILED:
- Cannot sue or maintain any action in FL until filed + all fees and penalties paid
- Subject to Dissolution or Cancellation of Authority to Transact Business
Merger
One Corporation Absorbs Another Corporation
(1) Directors of Both Corporations develop a Merger Plan
(2) Majority Vote of Shareholders of Each
Effective when: Articles of Merger are filed with DoS
Short Form Merger: Parent and Subsidiary at least 80% owned by parent – don’t need approval from subsidiary’s board or shareholders - only parent’s board
Share Exchange
One Corporation Acquires All Outstanding Shares of One or More Classes of Another Corporation
(1) Directors of Both Corporations develop a Share Exchange Plan
(2) Majority Vote of Shareholders of Each
Sale of Substantially All Assets
Approved by: Shareholders of ACQUIRED (selling) Corporation
Acquiring Corporation does NOT become liable for other’s debts – unless agreement to assume them
Federal 16(b)
Officer, Director, 10% Shareholder
Publicly Traded or 2k Shareholders with more than $10M in assets
- Nexus to Interstate Commerce
Must Return Profits to Corp from Trading Stock within 6-Month Period (Purchase + Sale)
Federal Rule 10b-5
Fraud + Deceit in Purchase or Sale of Any Security (Adequate Disclosure)
- Minimum Nexus to Interstate Commerce
Knowledge, Intent, or Recklessness
Florida Blue Sky Laws
Fraud + Deceit in Purchase or Sale of Any Security
DON’T NEED: knowledge, intent, or recklessness
DON’T NEED: nexus to interstate commerce
*FL Courts: Directors/Tippees are NOT liable to corporation for personal profits in trading on insider info
Business Trusts
NOT a legal entity – unless for federal bankruptcy law
CANNOT – engage in banking or a security business
Created by: Deed or Declaration of Trust + Filed with Secretary of State
Trustees Personally Liable to Trust Creditors
- Shareholders NOT Personally Liable
