Formation of the Corporation

Question 1

Who may act as an incorporator?

Answer 1

One or more natural persons, or an entity such as a corporation, partnership, or association. (There are no qualifications such as age, residency, or citizenship).

Question 2

What are the articles of incorporation?

Answer 2

The articles of incorporation constitute the agreement between the incorporators regarding the details of organization of the proposed corporation.

Question 3

What are the MANDATORY provisions of the articles of incorporation?

Answer 3

• The articles MUST be in writing;
• The name of the corporation must be distinguishable from all other entities authorized to do business in Florida;
• It must state the aggregate number of shares that the corporation is authorized to issue;
• The street address of the corporation’s initial registered office in Florida, and the name of its initial registered agent, with the agent’s written acceptance;
• The names and addresses of the incorporators; and
• The street address of the initial principal office

Question 4

What are optional provisions that the articles MAY include?

Answer 4

• The number of directors constituting the initial board of directors, and the name and address of each member thereof;
• The par value of stock or a statement that it shall have no par value;
• The imposition of personal liability on shareholders to a specific extent;
• The general purposes for which the corporation is initially organized;
• Any other provision not inconsistent with law

Question 5

What may the articles NOT include?

Answer 5

• Provisions imposing liability on a shareholder for attorney’s fees or expenses related to a corporate claim (such as a derivative action)

Question 6

What is the procedure for incorporation?

Answer 6

Incorporation is accomplished by the incorporators preparing, signing, acknowledging and delivering the articles to the department of state.

Question 7

The filing of the articles of incorporation is deemed…

Answer 7

Conclusive evidence that all required conditions precedent have been met and that the corporation has been validly incorporated.

Question 8

What is a de jure corporation?

Answer 8

Upon substantial compliance with all of the mandatory statutory requirements for incorporation, the corporation is deemed to be a de jure corporation.

• De Jure status in Florida is achieved upon filing of the articles and is effective against all parties, except the state.

Question 9

Do Florida courts recognize the de facto corporation doctrine?

Answer 9

No, if the defendant knew of the lack of incorporation.

Question 10

Personal liability for defective incorporation?

Answer 10

Florida expressly provides 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

Question 11

What is disregard of the corporate entity or “piercing the veil”?

Answer 11

When the corporate entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the courts will disregard the corporate entity and treat the shareholders as an association of individuals.

Question 12

What are the common grounds for disregarding the corporate entity?

Answer 12

1. The alter ego doctrine;
2. Thin capitalization;
3. The Deep Rock doctrine; and
4. The existence of subsidiary corporations.

Question 13

What is the Alter Ego Doctrine?

Answer 13

Where the corporate form is a mere sham or “conduit” for the business activities of its shareholders, the courts may disregard the corporate entity as the alter ego or instrumentality of the individual shareholders.

Question 14

What factors do the courts consider in determining whether a corporation is the alter ego of its shareholders?

Answer 14

Whether:

1. Corporate and personal funds are carefully segregated and not intermingled;
2. There is a bona fide corporate purpose for all business transactions, rather than a personal shareholder motive; and
3. The corporation’s affairs, in general, are kept carefully distinguishable from the shareholders’ personal affairs

Question 15

The Florida Supreme Court has held that the corporate veil cannot be pierced absent a showing of…

Answer 15

Improper Conduct, such as fraud or illegality

Question 16

What is the thing capitalization theory of piercing the corporate veil?

Answer 16

Capitalization inadequate to meet the reasonably foreseeable financial needs of the business is too thin, and the shareholders may be held personally liable upon the insolvency of the corporation (this is a question of fact)

Question 17

Does thin capitalization affect the tax liability of the corporation?

Answer 17

Yes.

Question 18

What is the deep rock doctrine?

Answer 18

Where shareholders in close corporations make a substantial portion of their capital contribution in the form of loans…

Question 19

Subsidiary corporations

Answer 19

A subsidiary is generally treated as an entity distinct from its parent.

• But if the subsidiary is inadequately capitalized, its operations or assets intermingled with the parent’s, or its business operated solely for the benefit of the parent, both the parent and the subsidiary will be treated as a single entity, rendering the parent liable for the debts of the subsidiary