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FL Corporations Flashcards

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1
Q

Formation

A

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
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2
Q

De Jure vs De Facto

A

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

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3
Q

Articles of Incorporation

A

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

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4
Q

Bylaws

A

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

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5
Q

Pre-Incorporation Contracts

A

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

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6
Q

General Corporate Powers

A

(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

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7
Q

Ultra Vires Act

A

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
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8
Q

Foreign Corporation

A

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

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9
Q

Subscription Agreement

A

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

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10
Q

Issuance of Shares

Consideration + Par Value + Watered Stock

A

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
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11
Q

Shareholder Preemptive Rights

A

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

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12
Q

Shareholder Management

A

Only if:

(1) Stated in the AOI, or
(2) Unanimous Shareholder Agreement - only for private companies

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13
Q

Shareholder Special Meetings

A

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

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14
Q

Court-Ordered Shareholder Meeting

A

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

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15
Q

Shareholder Voting

A

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.

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16
Q

Shareholder Quorum

A

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

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17
Q

Shareholder Proxy Voting

A

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
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18
Q

Shareholder Voting Trust

A

(1) Written Trust Document +
(2) Copy to Corp. +
(3) Transfer of Legal Title to Trustee

Irrevocable

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19
Q

Shareholder Voting Agreement

A

Signed Writing stating how shareholders agree to vote in advance

Enforceable Against Transferee with Knowledge or Conspicuously Noted on Shares

20
Q

Shareholder Pooling Agreement

A

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.

21
Q

Shareholder Derivative Action

Standing + Complaint + Dismissal + Costs + Settlement

A

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

22
Q

Shareholder Direct Action

A

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.

23
Q

Shareholder’s Right to Inspect Records

Absolute Right + FL Statute + Proper Purpose

A

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

24
Q

Piercing the Corporate Veil

A

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.

25
Q

Directors

A

At least one

Natural Person and 18+

*Non-Profit Corporation: at least 3

26
Q

Removal of Directors

A

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

27
Q

Directors/Officers Compensation

A

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).

28
Q

Directors Meetings

A

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

29
Q

Directors Quorum and Voting

A

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
30
Q

Directors Duties

A

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.

31
Q

FL Director Immunity Statute

A

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

32
Q

Removal of Officers

A

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

33
Q

Officers

A

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

34
Q

Fundamental Changes

A 
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
35
Q

Voluntary Dissolution

A

(1) Board of Directors Approval
(2) Absolute Majority (Majority of Shares Entitled to Vote)

*or written consent of absolute majority of shares

36
Q

Involuntary Dissolution by Shareholders

A

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.

37
Q

Appraisal Rights

A

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

38
Q

Amendment of AOI

A

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.

39
Q

Failure to have Certificate of Authority

A

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

40
Q

Annual Report

A

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
41
Q

Merger

A

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

42
Q

Share Exchange

A

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

43
Q

Sale of Substantially All Assets

A

Approved by: Shareholders of ACQUIRED (selling) Corporation

Acquiring Corporation does NOT become liable for other’s debts – unless agreement to assume them

44
Q

Federal 16(b)

A

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)

45
Q

Federal Rule 10b-5

A

Fraud + Deceit in Purchase or Sale of Any Security (Adequate Disclosure)
- Minimum Nexus to Interstate Commerce

Knowledge, Intent, or Recklessness

46
Q

Florida Blue Sky Laws

A

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

47
Q

Business Trusts

A

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

FL Bar (1 decks)

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