FORMATION Flashcards
Forming a Corporation
(1) One or more incorporators
(2) submit the articles of incorporation
(3) hold organizational meeting to elect directors, and
(4) Default Rules-only need to put in articles if you want a different rule. Otherwise perpetual duration; same powers as an individual; and any lawful purpose
then either the incorporators or new directors elect officers and adopt bylaws
Articles of Incorporation
4 requirements:
(1) Name and address of corporation-must include Corp., Co., or Inc.*
(2) Name and address of each incorporator
(3) Address of Registered Office and name of Registered Agent at that office (to accept service)
(4) Number of Authorized Shares: maximum number of shares a corporation is permitted to sell.**
*Florida does not allow a corporation to use Ltd.-only for a limited partnership.
**If more than one class of shares is authorized, articles must include the number/attributes of each class.
De Jure Corporation
Filing is conclusive proof a corporation was duly formed in accordance with the law.
De Facto Corporation
Even if there is a defect in formation of a corporation, the law implies the formation of a corporation in certain instances.
There must be:
(1) Good faith attempt to form a corporation, and
(2) an act on the corporation’s behalf
Corporation by Estoppel
A person or entity that will be able to estop a business or entity from escaping liability based on its lack of actual corporation when:
(1) that person dealt with the business as if it were a properly formed corporation
(2) without knowledge of the business’ status as unincorprated*
*A person who deals with a business as if it were a corporation, knowing that there was no incorporation, are jointly and severally liable for all liabilities created while so acting.
Corporation by Estoppel Limitation
Corporation by estoppel protects shareholders only against contract claims, not tort claims, since contract creditors could have protected themselves in advance (eg. getting a personal guarantee from the shareholders)
Number of Authorized Shares
Maximum number of shares a corporation is permitted to sell. But if more than one class of shares is authorized, articles must include the number and attributes of each class.
Name of Registered Agent
If agent dies, serve Florida Secretary of State
Ultra Vires Act/Definition
When a corporation goes beyond its purpose or power.
eg. what if a corporation has a narrow purpose clause (to sell donuts) but it later starts to sell outlines? It is considered an Ultra Vires Act.*
*Florida statute no longer uses the term “ultra vires” instead it references the idea that the corporation has gone “beyond its purposes or powers.”
Options for Ultra Vires Act
Shareholder or State can seek an injunction; and
Officers/directors are personally liable in a direct or derivative action by the corporation for any ultra vires losses they cause.
*Remember Fl. does not use the term “Ultra Vires” anymore. It generally references the idea that a corporation has gone beyond the corporation’s purpose or power.
Ryan Tannehill mailed articles to the Department of State. A week later, he contracts for the firm. The articles had not been filed because they got lost in the mail. Is Ryan liable on the contract?
No. Ryan made a good faith attempt to form a corporation, and he acted on the corporation’s behalf by entering into a contract in the company’s name.
Ryan Tannehill mailed articles to the Department of State. A week later, he contracts for the firm. The articles had not been filed because they were lost. Ryan knew that the articles had not been filed at the time he entered into the contract. Is he liable on the contract?
Yes. He cannot be aware of the formation defect.
*In Florida, it is expressly provided that all persons purporting to act as or on behalf of a corporation, knowing that there was no incorporation, are jointly and severally liable for all liabilities created while so acting.
Bylaws
Contain matters of internal governance, like the Vice President’s duties, meeting dates, etc.
Adopt Bylaws
Either the incorporators or the directors may adopt the initial bylaws, unless that power is reserved to the shareholders in the articles.
Amendment to the Bylaws
Either the directors or the shareholders may amend the bylaws, unless that power is reserved to the shareholders in the articles or by the shareholders themselves in amending a particular bylaw.
