florida corporations Flashcards
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Duration of Corporation
corporation lasts forever once created, as long as you pay annual fee
lawful activity for corps: ultra vires
- not used in fl, corp can do anything that is lawful to do (like donate to charities)
- rule applies to corps not non-profits
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A corporation engages in an ultra vires act when it engages in activities outside of a stated business purpose in its articles of organization.
If a third party has entered into a transaction with a corporation, and that transaction constitutes an untra vires act for the corporation, the third party cannot challenge the act.
An ultra vires act can only be challenged in the following three situations:
- a shareholder can file suit to enjoin the corporation’s ultra vires action
- the corporation can take action against a director, an officer, or an employee of the corporation who engages in such action, or
- the state can initiate a proceeding against the corporation to enjoin its ultra vires action (i.e., quo warranto).
forming corp: articles of incorporation
way to create entity is to file doc with fl sec of state
articles of incorporation and fees, signed by specific people
once articles of incorporation filed, corporation comes into existence
articles of incorporation are like constitution, hard to change
can put anything that is not inconsistent with fl statutes governing corporations
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amending AOI
A corporation can amend its articles of incorporation to reflect any lawful provision.
In order to authorize a new class of stock, a corporation must amend its articles of incorporation.
If the corporation has issued stock, it must follow a two-step approval process for amendment of the articles:
- the board of directors must adopt the amendment to the articles and
- the board must submit the amendment to the shareholders for their approval by a majority vote.
However, when there are different classes/series of stock and the amendment adversely effects the rights of the shareholders of a particular class/series, that class/series is entitled to vote on the amendment.
The class/series of stock must separately approve the amendment by a majority of the total number of shares entitled to be case by that class/series.
required info on articles of incorporation
- name of corporation
- address of registered office of corporation
- principal office of corporation (usually the same as registered office)
- name and addresses of incorporators
- name of registered agent and their acceptance (person received service of process)
- number of shares authorized along with classes of shares
- A Florida corporation must have at least one director, and the articles or bylaws must specify the number of directors that the corporation requires or a method for determining that number.
florida business corporations act
the articles of incorporation must include the aggregate number of authorized shares.
The articles must also:
* authorize one or more classes of shares or series of shares within a class that together have unlimited voting rights and
* authorize one or more classes of shares or series of shares within a class that together are entitled to the net assets of the corporation upon dissolution.
a redemption price of stock can be dependent on facts from an outside source that are objectively ascertainable. And the articles may fix a par value for stock.
optional information on articles of incorporation
- preemptive shares= if you want to have it for shareholders you need to state it in articles of incorporation
- specify an effective date of five business days or less before the filing date or 90 days or less after the filing date.
classes of shares
- common stock
- preferred stock
* preferred because when time to issue dividents, preferred gets larger/first dibs
* typically does not vote at meetings
corporate name rules:
- corp name must have “corporation” “incorporated” or “company”
- can be abbreviated, “co” “corp” “inc”
- can’t be misleading, like indicia associated with govt
- must be unique, can’t be same as other name
permissive info
- things which may be in articles of incorporation
- bylaws are like state statutes, easier to change
- permissive info can be in bylaws like:
- number of directors, par value for stocks
defective formation
If someone purports to conduct business as a corporation without making any effort to comply with the requirements, they will be liable for any obligations incurred by the “nonexistent” firm.
More commonly, a promoter will make a good faith effort to comply with the incorporation requirements but makes a mistake.
* The owner, as de-facto shareholder is not personally liable for obligations incurred in the corporation’s name.
A second possibility is “corporation by estoppel.” An outsider who deals with a business entity as if it were a valid corporation is estopped from denying its existence (even if improperly formed).
there is also de jure corporation
defective formation: de jure corporation
- perfect corporation, did everything right in incorporating
defective formation: de facto corporation
- corporation in fact, factually treated as corp but not yet legally a corp
- a good faith attempt to incorporate (clerk did not file paperwork, trivial mistake)
defective corporation: corporation by estoppel
- when corporation has not been formed, but people running corporation honestly and reasonably believe corporation was formed
- if someone is suing, person being sued is estopped from claiming corporation does not exist
- people behind corp not held personally liable, they believed they were in corporation
promoter: duties
Prior to incorporation: in a joint venture with the other promoters
* They each owe fiduciary duties to other promoters and cannot act
to receive personal gain
* Owe the corporation and its investors fiduciary duties such that the promoter cannot benefit personally at the expense of the corporation
person who promotes creation of corp
could be the incorporators
often hired by people who want to incorporate to recruit investors
promoter liability
personally liable for pre-incorporation transactions
often enter into k’s where they say they will put out ad for investors, cost 5k, and corp held liable once incorporated
* now corp formed, marketing co comes for 5k, asks corp for 5k, corp denies payment, ad agency can now go for original promoters who signed k for 5 k
* promoter liable for transactions entered into even if k states corporation will be liable for k; they are actually signing personally on it
* only time promoter not liable is if corp and creditor (like ad agency) entered into novation (new k) discharging onligations from old k
pre-incorporation agreement (subscription) to purchase stock
before an organization’s incorporation, individuals may subscribe to purchase stock from the corporation when it is formed in the future.
This agreement is generally irrevocable for six months unless
1. the agreement provides for a different term or
2. all subscribers agree to the revocation.
To be enforceable against the subscriber, it must be in writing and signed by the subscriber.
While a corporation may pursue normal collection methods when a subscriber fails to pay the subscription amount, it may rescind the agreement and sell the stock to someone else if:
* the corporation makes a written demand for payment, and
* the debt remains unpaid for more that 20 days after the corporation delivers the demand to the subscriber.
pre-incorporation agreement (subscription) to purchase stock
before an organization’s incorporation, individuals may subscribe to purchase stock from the corporation when it is formed in the future.
This agreement is generally irrevocable for six months unless
1. the agreement provides for a different term or
2. all subscribers agree to the revocation.
To be enforceable against the subscriber, it must be in writing and signed by the subscriber.
While a corporation may pursue normal collection methods when a subscriber fails to pay the subscription amount, it may rescind the agreement and sell the stock to someone else if:
* the corporation makes a written demand for payment, and
* the debt remains unpaid for more that 20 days after the corporation delivers the demand to the subscriber.
stocks (shares): debt instruments
- debt= corporate bonds, promise to pay person back a fixed amount of money
- bond holder has no ownership interest to manage corp, its just debt
- in bankruptcy and liquidation, lawyers paid first and second paid are debtors owed money to, people at bottom of totem pole are equity shareholders
stocks (shares) equity interests
- ownerys buying into corp, equity given by shares
- have right to manage corp through election process
distribution to shareholders
- profits of corporation moved to shareholder (dividends)
- whether to authorize sharing of profits is matter exclusively reserved to board of directors
- equitable solvency and modified balance sheet tests
The board of directors has the power to authorize a dividend distribution.
The board may delegate the power to fix the amount and other terms of the distribution to a board committee or corporate officer.
The board may fix the record date for determining shareholders entitled to a distribution, and if the board does not fix a record date, the record date is the date the board authorizes the distribution.
transfer of stock
- What makes corp a corp is transfer ownership from one person to another
- Shares are freely transferable, but theyre like deeds they have restrictions
Must be reasonable and conspicuous restrictions - It says it on the share certificate, usually (conspicuous)
- Reasonable
1. Total refusal to transfer is unreasonable
2. Right of first refusal is ok - On share it will say stock restricted, right of first refusal
- Before you, corporation gets first shot at buying stock before sold to someone else
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If person receives stock WITHOUT CONSPICUOUS restriction BUT KNOWS OF THE RESTRICTION, it CAN BE VOIDED
stock subscription agreements
- agreement where subscriber agrees to buy specified amount of shares at specified price
- tests 2 things
1. revocation: in fl, these agreements irrevocable for 6 mos
2. consideration: cash and anything board of directors deem adequate, is adequate; no challenging them on it (sell x shares if you serve as ceo for a year, promissory note, IOUs)
shareholder: shareholder powers
- shareholder owns stock, sometimes they’re stockholders; same thing
- have no power to run corp
- only power they have is to vote for board of directors and proposals
shareholders: meetings
- only time they exercise power is at shareholder meetings
- two types of meetings
1. annual meeting: defined in terms of months, in fl (13 mos), shareholders must have 10 day notice
2. special meetings: called as circumstances warrant, must have special notice 10 days for shareholders
shareholder meetings: quorum
- votes needed to pass
- quorum is majority number of shares entitled to vote
- no quorum, no meeting
- at healst half of shareholders need to present at voting to have quorum
- of half shareholder, only need majority to pass something (half+1)
shareholder meeting: proxy votes
give someone else to vote on behalf as instructed to
cumulative voting
- fl allows for this
- to alleviate straight voting, there is an optional voting system (can be in AOI or bylaws, or anywhere) gives you number of votes equal to number of shares you have times the number of open seats on boarf of directors
- way to enfranchise minority voters
With cumulative voting, A can vote all 90 shares (30 votes per director times three open positions) for one director. If there are four candidates running for three board positions, A can vote all 90 shares for Candidate 1. B (with 210 votes) can vote 91 shares for Candidate 2 and 91 shares for Candidate 3. However, B only has 28 shares remaining to vote for Candidate 4, which is not sufficient to beat Candidate 1. The result is that A’s choice is guaranteed a place on the board.
straight voting
- when shareholders voting for board of directors, number of votes you get in ordinary stragiht voting is number of shares you have
- this blocks power of minority shareholders, disenfranchising them
- minority shareholders sometimes never allowed to vote in director
shareholder rights to dividends
- shareholder rights to dividends do not exist
- solely up to board of directors whether to grant any type of dividends
- protected by business judgment rule
shareholder voting trust
- another way for shareholders to get power as a group
- trust is like its own separate entity, own assets, legal title to assets, but assets managed for beneficiary (one or more people), beneficiary has equitable title (benefit to asset)
- trust created where shareholders transfer as res of trust, their shares into trust
- this is an irrevocable transfer
- beneficiaries tell trustee what they want him to do
- when dividends issued, trust owns shares and received dividends, which it distributes to people who created trust (if beneficiary has died, everyone who gets in shares gets back a voting trust certificate)
- So put In shares in trust, voting certificate in exchange, this certificate is now tradeable with people, like a share –> now that person can get dividends
shareholder pooling agreements:
- another way for shareholders to get power as a group
- contract, instead of trustee we need to agree by way of k that we will vote a certain way
- we as people entering into agreement, pool resources to vote the way k says to vote
board of directors
Unless a corporation has formed a shareholder management agreement, it must establish a board of directors.
The board has ultimate authority for exercising corporate power and it also manages and directs the decisions of the corporation.
The board can appoint and authorize officers and employees to carry out the corporation’s day-to-day business.
board of directors: election
The number of directors may be established in the articles of incorporation or the bylaws. Firms may also set a range
* Can increase or decrease the number of directors by amending the bylaws
* If you decrease the number of directors, it will not shorten that term for a director
* you do not need any qualifications to serve as a director, unless there is something specified in articles or bylaws
* you do not need to be a fl resident
elected by shareholders
* The directors are selected by shareholder vot at the annual
meeting.
* directors in fl elected by plurality vote, person who gets most votes
* if the articles or bylaws fail to allow cumulative voting, the statutory default is a plurality of the votes cast.
* if board of directors running for re-election, they can be removed without cause by shareholders
corp with 100 or less shareholders can dispense with having board of directors
NOTE ON PLURALITY VOTING: if AOI speciies there are to be a specific amount of members on the board of directors (ex: 2), then each shareholder will be able to use the total of their shares FOR EACH OPEN POSITION
example: A owns 30 shares of X, Inc. stock. B owns the remaining 70 shares. X, Inc. has three open positions on the board of directors. Without cumulative voting, A can vote 30 shares for a candidate for each of the open positions, while B can vote 70 shares toward a different candidate for each open position. The result is that A is unable to elect any of the three directors because B owns a majority of the shares.
example: meaning if shareholder has 45 shares, she can use 45 shares for one person and 45 shares for the second person she wants on the board, can even do 45 shares for one person, 44 for a second, and 1 for the last position)
term of directors
A director will typically serve a one-year term
* A director may serve for a longer term, however, if the board is staggered
* longest permissible term for a director is 3 yrs
* A director can continue to serve until the director’s successor is elected and qualified (or until the number of directors is decreased) even though the director’s term has expired (unless the articles of incorporation provide otherwise).
Vacancies: filled by shareholder vote, director vote, or by a vote of a majority of the remaining directors
A director may resign at any time by delivering written notice of resignation to the board, its chair, or the secretary.
shareholders can remove a director at a meeting called for that purpose
* dont need cause to remove (unless AOI says so)
* you can remove a director elected by cumulative vote
* The director cannot be removed when votes sufficient to elect the director are cast against the removal decision
Directors may also be removed by court order if director committed fraud against the corporation or its shareholders, grossly abused the position of director, or intentionally harmed the corporation—and the court deems this in the best interest of the corporation.
A director may not be removed by the other directors of the corporation.
board of director: meeting types
- like shareholders, can only act as body, when they’re in a meeting they have power
- in person, virtual
- meeting types: regular (every mo or 2 mos), no notice needed; special (need 2 days notice)
- A director may waive notice of a special meeting, explicitly or by attending the meeting
- subject to corporation’s articles or bylaws, a regular board meeting may be held without notice of the date, time, place or purpose of the meeting
- Any meeting may be held outside of Florida unless the articles state otherwise
- the director does not need to be physically present at the meeting, they just need to be able to hear each other.
- a majority of directors present, even if not a quorum, may adjourn any meeting to another time and place BUT NOTICE OF AN ADJOURNED MEETING MUST BE GIVEN TO THE DIRECTORS WHO WERE NOT PRESENT AT THE TIME OF ADJOURNMENT
- The board may also take action without meeting if each director signs a written consent (unless the articles or bylaws require otherwise).
board of directors: quorum
- Typically, each director will get one vote, but the article or bylaws may provide that a director has more of less than one vote on any matter. If so, determination of a quorum and approval of the decision will be based on the number of votes (not the number of directors).
(1) quorum
* at least half directors present to have a meeting
* you can change quorum for board of director meetings in AOI, can reduce amount of officers required, but can never be less than 1/3
* majority required to pass any business (half + 1 need to vote)
* A vacant director position counts for quorum purposes even if the vacancy is due to the death, resignation, or removal of a director
director liability
A director may incur liability for illegal or improper action taken by the board at a meeting where the director is present even if she does not vote in favor of the action. To protect against this liability, the director must dissent by:
* Promptly objecting to the holding of the meeting or the transaction of specific business at the start of the meeting; or
* Vote against the action or abstain from voting (must be noted in the minutes, or else you will be liable too).
director committees
A board of directors may take action through committees of one or more directors
Generally, a majority of the directors must vote for the creation of the committee and for the appointment of a director to the committee (unless the articles or bylaws require a greater number).
* A committee may exercise the powers of the board, but a committee cannot adopt, amend, or repeal bylaws.
* CAN oversee the search for and select a replacement for the current president
A committee may take action on most proper matters, except a committee cannot:
* Approve or propose actions that require shareholder approval
* Approve a plan of merger (even if shareholder approval would not be required)
* Fill vacancies on the board or a committee
* Amend the articles
* Adopt, amend, or repeal bylaws
A publicly held corporation will typically have the following committees:
* audit committee to direct responsibility for selecting, compensating, and overseeing the corporation’s outside auditors. + may fix the amount and terms of a distribution after the distribution has been authorized by the board of directors.
* compensation committee
* nominating committee
Under Sarbanes-Oxley (SOX), a corporation with stock listed on a national exchange must have an audit committee with direct responsibility to select, compensate, and oversee the auditors.
* The members of this committee must also be independent directors
action without meeting
- board of directors have statutory provision to act without meeting, if unanimous written consent from board of directors for proposed action
