Business Organization

Question 1

Formation and structure of corps

Big picture

Answer 1

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

Question 2

Duration of corporate existence

Answer 2

Forever IF you pay the annual report fee.

Question 3

Lawful activity

Answer 3

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

Ultra vires -

Question 4

1. Forming a corporation

topics

Answer 4

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

Question 5

Articles of Incorporation

Formation

Answer 5

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

Filing makes the corporation come into existence

Question 6

Required information in Art. of Inc.

Formation

Answer 6

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

Question 7

Preferred stock

Class of stock

Answer 7

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

Question 8

Corporated name rules

Required for Art. of Inc.

Answer 8

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

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

Question 9

Permissive information on Art. of Inc.

May be included (but does not have to)

Answer 9

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

Question 10

Par value stock

Answer 10

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

Question 11

Defective formation

Types

Answer 11

1. De jure corporation
2. De facto corporation
3. Corporation by estoppel

Question 12

De jure corporation

Answer 12

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

Question 13

De facto corporation

Answer 13

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

Not legally a coporation yet

Question 14

Corporation by estoppel

Answer 14

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)

Question 15

Promoter liability

Formation - Promoter def

Answer 15

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.

Question 16

Promoter liability

Formation - default rule

Answer 16

Promoter will be liable for any transaction they entered into

Question 17

Promoter liability

Formation - exception

Answer 17

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

Question 18

Stocks

big picture

q

Answer 18

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

Question 19

Capital structure of Corporation

Stocks - 2 ways

Answer 19

1. Debt
2. Equity

Question 20

Capital structure of Corporations

Debt v. equity

Answer 20

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

Question 21

Preemtive rights

Stocks

Answer 21

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

Question 22

Distributions to shareholders

Stocks

Answer 22

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

Question 23

Transfer of stock

Answer 23

**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)

Question 24

Stock subscription agreements

Answer 24

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

Question 25

2.Shareholders | Big pictures

Answer 25

1. Powers 2. Meetings 3. Cumulative Voting 4. Voting trusts 5. Pooling agreements 4. Dividends

Question 26

Shareholders' **powers**

Answer 26

**VOTING!** They can vote for BOD & corporate proposals (i.e. dissolutions/amendments) **Can ONLY vote at meetings** | They do not manage

Question 27

Eligibility to vote | **Date Determination**

Answer 27

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.

Question 28

Eligibilitiy to vote | **Last day to buy**

Answer 28

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

Question 29

**Cumulative voting**

Answer 29

**( #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

Question 30

Shareholders' **voting trust** | Voting

Answer 30

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

Question 31

**Shareholders' pooling agreements**

Answer 31

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)

Question 32

Shareholders' **meetings** | Types

Answer 32

**(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

Question 33

Shareholders' meetings | **Lists requirements**

Answer 33

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.

Question 34

Shareholders meetings | **Quorum**

Answer 34

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

Question 35

**Proxy**

Answer 35

| In FL: proxies expire **after 11 months** unless otherwise provided

Question 36

Dividends

Answer 36

Shareholders **DO NOT have a right to dividends**

Question 37

Shareholders' voting trust | **Dividends**

Answer 37

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

Question 38

Board of directors | Big picture

Answer 38

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

Question 39

BOD | Necessary?

Answer 39

if there are 100 or less shareholders, you can dispense of BOD... so there, no But 100+ -- necessary

Question 40

BOD **elections**

Answer 40

By **plurality** = person with the most votes wins. BOD can be removed w/o cause

Question 41

BOD **meetings** | Types

Answer 41

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**!!

Question 42

**Action without meeting** | BOD

Answer 42

UNLESS ... there is no need for a meeting IF there is **UNANIMOUS written consent** to the proposed action | Exception not default

Question 43

**Duty of care** | Fiduciary duties

Answer 43

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!

Question 44

**Duty of loyalty** | Fiduciary duties

Answer 44

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

Question 45

Interested director transaction | Duty of loyalty

Answer 45

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

Question 46

**Corporate opportunity doctrine** | Duty of loyalty

Answer 46

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")

Question 47

**Corporate mergers** | Who votes to approve?

Answer 47

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

Question 48

Mergers | Types of corporate mergers - voting

Answer 48

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

Question 49

Share exchange | Types of corporate mergers

Answer 49

One corp. acquires ALL outstanding shares and becomes the sole controlling corp. **aka "bought out"** - still not adversarial

Question 50

**Short-merger** | aka Hostile takeover

Answer 50

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