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FLAP (FL) > Business Organization > Flashcards

Business Organization Flashcards

1
Q

Formation and structure of corps

Big picture

A
  1. Articles of incorporation
  2. Stocks
  3. Shareholders
  4. Board of directors
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2
Q

Duration of corporate existence

A

Forever IF you pay the annual report fee.

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3
Q

Lawful activity

A

No need for ultra vires
it can do anything that’s lawful w/corp

Ultra vires -

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4
Q
  1. Forming a corporation

topics

A
  1. Articles of incorporation
  2. Required information on Articles of Incorporation
  3. Corporate name rules
  4. Permissive information on AofI
  5. Defective formation
  6. Promoter liability
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5
Q

Articles of Incorporation

Formation

A

You must: (1) file them w/secretary of state, (2) attach fees, (3) sign them

Filing makes the corporation come into existence

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6
Q

Required information in Art. of Inc.

Formation

A
  1. Name of corporation
  2. Address of registered office
  3. Principal office
  4. Name & address of incorporators
  5. Name of registered agent & acceptance (this is person who gets notice & service)
  6. # shares authorized
  7. Classes of stock (common or preferred)

+ preemtive rights if wanted

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7
Q

Preferred stock

Class of stock

A

First to received dividend/distribution OR highes distribution
BUT they may not vote

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8
Q

Corporated name rules

Required for Art. of Inc.

A

Must end in Corporation (corp.), company (co.), incorporation (inc.)

Name CANNOT be misleading AND must be **unique **

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9
Q

Permissive information on Art. of Inc.

May be included (but does not have to)

A

Anything not inconsistent w/FL law, i.e.
+ #directors
+ Par value stock

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10
Q

Par value stock

A

Means that the corporation cannot issue/sell stocks for less than established par value - $$

IF they were to do so, they run the risk of having watered stock and BOD would be liable for the difference to what the stock was sold for

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11
Q

Defective formation

Types

A
  1. De jure corporation
  2. De facto corporation
  3. Corporation by estoppel
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12
Q

De jure corporation

A

Legally perfect = corporation at law!
Everything in incorporating it is right

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13
Q

De facto corporation

A

There is good faith attempt to incorporate but something trivial went wrong = corporation in fact

Not legally a coporation yet

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14
Q

Corporation by estoppel

A

Corporation HAS NOT been formed, but people running it honestly & reasonably believe corp. was formed (but was not, usually from bad lawyer)

Stops people from suing those relying in the belief corp had been form to deny that a corp. existed (sue the corp and not attach personal liability to those people)

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15
Q

Promoter liability

Formation - Promoter def

A

Promoter = motivates people to invest in the corporation (tends to be the incorporators, but does not have to be)

Usually incorporators are the promoters, but it does not have to be.

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16
Q

Promoter liability

Formation - default rule

A

Promoter will be liable for any transaction they entered into

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17
Q

Promoter liability

Formation - exception

A

Default applies UNLESS the corporation & creditor enter into a novation b/w the 2

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18
Q

Stocks

big picture

q

A
  1. Capital structure
  2. Preemtive rights
  3. Distributions to shareholders
  4. Transfer of stock
  5. Stock subscription agreements
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19
Q

Capital structure of Corporation

Stocks - 2 ways

A
  1. Debt
  2. Equity
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20
Q

Capital structure of Corporations

Debt v. equity

A

Debt
1. def: promise to pay someone certain amount
2. ownership: none
3. priority of $$ claims: as a creditor, they get paid first

Equity
1. def: owners buying into the corporation by getting shares (#shares = $$ paid)
2. ownership: yes, shareholders’ right to VOTE for BOD
3. priority of claims: none, gets paid if any $$ left after all creditors are paid

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21
Q

Preemtive rights

Stocks

A

IF BOD determines to issue new shares and such issuance would dilute shareholders’ ownership interest… this allows existing shareholders the right, but no the obligation to purchase new shares FIRST to maintain their proportional ownership interest

CAN waive it by not buying, but right resets for each issuance of shares

22
Q

Distributions to shareholders

Stocks

A

aka dividends = profits of corporation moving into shareholders’ pockets

BOD decides whether to offer dividends - and BOD has a presumption of correctenes when they decided to do/not to do so under the business judgment rule

23
Q

Transfer of stock

A

**Free to transfer ownership **by transfering stock BUT there can be restrictions (by you/others) on the transfer.

Such restrictions must be: reasonable & conspicuous (must be obvious, i.e. written in the share bought, etc.)

Restriction can be right of first refusal (letting corp. buy it first)

24
Q

Stock subscription agreements

A

Agreement where A subscribes to buy #shares at a specifc price w/anything that BOD deems adequate as consideration (i.e. cash, promisory notes, etc.)

In FL: This is irrevocable for 6 months

25
Q

2.Shareholders

Big pictures

A
  1. Powers
  2. Meetings
  3. Cumulative Voting
  4. Voting trusts
  5. Pooling agreements
  6. Dividends
26
Q

Shareholders’ powers

A

VOTING! They can vote for BOD & corporate proposals (i.e. dissolutions/amendments)

Can ONLY vote at meetings

They do not manage

27
Q

Eligibility to vote

Date Determination

A

The record date, fixed by BOD (unless bylaws fix/provide manner of fixing it) and may not be more than 70 days prior to the meeting.

28
Q

Eligibilitiy to vote

Last day to buy

A

One day before the record date or if no record date is fixed by the board, the close of business on the day before the first notice is delivered to the shareholders is the record date.

b/c after the record date, the stock transfer books are closed until the meeting, and the list of eligible voters is determined.

29
Q

Cumulative voting

A

( #shares ) x (#seats open for BOD) = voting points

If allowed by Art. of incorporation/bylaws, this voting gives extra votes to disenfranchised minority shareholders to elect BOD

30
Q

Shareholders’ voting trust

Voting

A

Shareholders transfer their shares as the res of the trust for a trustee to manage and obtain a voting trust certificate indicating:

(1) #shares you gave and the % of the trust you own (i.e. gave 42/60 shares, you own 70%) and
(2) how they want the trustee to act/vote directed by the trust document

Allows a few to exercise their power as a group

31
Q

Shareholders’ pooling agreements

A

Group pools their resources to vote as one, this must be in writing and signed

It may bind subsequent owners to vote as the agreement dictates (if included as a restriction in the transfer)

32
Q

Shareholders’ meetings

Types

A

(1) Annual meetings
1. Recurrence: Once every 13 months
2. Notice: 10 days

(2) Special meetings
1. Recurrence: may be called as circumstances warrant
2. Notice: 10 days

For both meetings to be valid they need quorum

If there is quorum, you need a majority (50+1) to pass something

33
Q

Shareholders’ meetings

Lists requirements

A

At least 10 days before each shareholders’ meeting, a corporation must compile a complete list of the shareholders of record entitled to vote at that meeting.

34
Q

Shareholders meetings

Quorum

A

Quorum means that the majority #shares entitled to vote are present
Shareholders CAN be present through proxy

35
Q

Proxy

A

In FL: proxies expire after 11 months unless otherwise provided

36
Q

Dividends

A

Shareholders DO NOT have a right to dividends

37
Q

Shareholders’ voting trust

Dividends

A

If BOD issues dividends,
1. the trust receives it, so trustee must distribute these dividends based on the voting trust certificate percentages.
2. Trustee is mandated to distribute these dividends to the trust’s beneficciaries

38
Q

Board of directors

Big picture

A
  1. election
  2. meetings
  3. action without meetings
  4. fiduciary duties (duty of care)
  5. fiduciary duties (duty of loyalty)
  6. corporate opportunity doctrine
39
Q

BOD

Necessary?

A

if there are 100 or less shareholders, you can dispense of BOD… so there, no

But 100+ – necessary

40
Q

BOD elections

A

By plurality = person with the most votes wins.

BOD can be removed w/o cause

41
Q

BOD meetings

Types

A

Regular - no notice needed

special - need at least 2 days notice

Both meetings need quorum
IF you modify #directors needed for quorum, it can BEVER be less than 1/3 of BOD

BOD can only act as a body in meetings!!

42
Q

Action without meeting

BOD

A

UNLESS … there is no need for a meeting IF there is UNANIMOUS written consent to the proposed action

Exception not default

43
Q

Duty of care

Fiduciary duties

A

Duty to act with care & prudence of the ordinary business person = you must make an informed decision (i.e. review, inspect, etc.)

Failure to make an informed decision may mean violation of duty of care!

44
Q

Duty of loyalty

Fiduciary duties

A

Duty to remain free of personal conflicts and take proper steps when there is an interested director transaction

45
Q

Interested director transaction

Duty of loyalty

A

Director must:
1. disclose conflict w/BOD
2. abstain from voting
3. decision must be approved by the majority of disinterested shareholders

Anyone related to the interest director (i.e. wife, children, etc.) must abstain from voting

46
Q

Corporate opportunity doctrine

Duty of loyalty

A

Director comes across a business opportunity that the corporation may be interested in … director must offer/disclose it to the corporation FIRST

If you fail to disclose – corporation can sue you to get all benefits back to the corporation (aka “clawback”)

47
Q

Corporate mergers

Who votes to approve?

A

EVERYONE! (even those shares classified as non-voting) b/c
1. every share has the right to vote for mergers
2. quorum does not apply to mergers (you need the majority + 1 of ALL outstanding shares)
3. Once a surviving company exists, such must file articles of merger w/state

48
Q

Mergers

Types of corporate mergers - voting

A

All shareholders from both corporations (surviving and absorved) must approve the process

voted merger

49
Q

Share exchange

Types of corporate mergers

A

One corp. acquires ALL outstanding shares and becomes the sole controlling corp.

aka “bought out” - still not adversarial

50
Q

Short-merger

aka Hostile takeover

A

One company buys/acquires 80% or more of another’s shares + files article of merger = merger

Adversarial

FLAP (FL) (4 decks)

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