• A PROMOTER of a corporation is someone who collects whatever is necessary for the business to get up and running and files the documents with the state. • A promoter is PERSONALLY liable for acting on behalf of a corporation IF he acts with knowledge that there was no incorporation.
PRE-INCORP TRANSACTION LIABILITY
A promoter is PERSONALLY liable for acting on behalf of a corporation IF he acts with knowledge that there was no incorporation. A corporation IS NOT liable for pre-incorporation transactions UNLESS: 1: Corporation RATIFIED the transactions that the promoter entered into (i.e., adopt the contract by accepting the benefits or by express acceptance of liability). or 2: NOVATION occurs (the parties replace the old contract with a new contract that makes the corporation liable).
INCORPORATION : Filing
o To form a corporation, the incorporators must file the ARTICLES of incorporation with the Department of State. o The NAME of a corporation may be reserved for a 120 DAYS period before incorporation.
INCORPORATION : REQ Info
The articles of incorporation must include: 1) NAME of the corporation 2) NUMBER of authorized shares 3) NUMBER of Directors (min 1)
Must contain one of three specific words: - corporation - company - incorporated
Articles : Number of Authorized Shares
The number cannot be based on facts outside the articles. Example 11: A provision like “as many shares as will be necessary to help raise money for the company” would not be allowed.
Articles of Inc : Permissive Info
The corporation’s purpose. Often simply “to engage in any lawful business/activity” A list of the corporation’s DIRECTORS The “PAR value” of the corporation’s shares (i.e., the share price below which the corporation cannot issue the shares) The DURATION (or lifetime) of the corporation; if none is stated, the corporation’s lifetime is perpetual. Exclusive FORUM SELECTION provisions for INTERNAL corporate claims • >> Can specify more than one court as long as one is in Florida and as long the corporation has a SUBSTANTIAL relationship with the other jurisdiction(s)
Articles of Inc : Restricted Language
The articles of incorporation MAY NOT include a provision that > would impose LIABILITY on a SHAREHOLDER > for attorney’s FEES or EXPENSE > of the corporation in connection with an INTERNAL corporate claim (but private agreements, outside the articles or bylaws, can include such terms).
Articles of Inc : Effective Date
1) Date Filed 2) Date specified up to 5 days prior or 90 days after
Remedies for Ultra Vires Corporate Action
1) In a STATE action, a court may - DISSOLVE the corporation or - ENJOIN the action. 2) In a SHAREHOLDER lawsuit, the court may - issue an injunction enjoining the action or - award DAMAGES other than anticipated profits
Amendment of Bylaws
May be amended by BOARD UNLESS articles restrict power to SHAREHOLDERS
Hierarchy of Laws
IF >by laws contradict the articles THEN >articles govern IF > articles contradict the statute THEN >statute governs
Failure to File Annual Report
1) may be dissolved 2) cannot sue or defend lawsuit until report filed
Default Voting Power Shares
EQUAL POWER and EQUAL right to receives assets upon dissolution
Min Req Stock Rights
At least one class or series of shares MUST have: 1) final voting power 2) Ability to receive the NET ASSETS upon dissolution
MUST 1) be in WRITING 2) SIGNED by subscribers A pre-incorporation subscription for shares is by default irrevocable for SIX (6) MONTHS. >>EXCEPTIONS: • Parties can agree to a different period; or • Subscribers can UNANIMOUSLY release each other. IF a subscriber DEFAULTS, the CORP has the RIGHT to: 1) Try to COLLECT what the subscriber promised to contribute; or 2) Sell the SHARES to someone else and recover the difference in damages.
Distribution Authority and Restrictions
DIRECTORS can authorize distributions, subject to ARTICLES AND STATUTORY RESTRICTIONS: EQUITY TEST = LIQUIDITIY >>To issue DIVIDENDS, a corporation must be able to pay off its DEBTS as they come due in the USUAL course of business. BALANCE SHEET = ASSETS > LIABILITIES + PREF RIGHTS >> To issue DIVIDENDS, a corporation’s total ASSETS must exceed its total LIABILITIES plus (unless the articles provide otherwise) an amount sufficient to satisfy preferred rights of other securities.
Permitted Restrictions on SH Sale of Stock
Articles of INC; Bylaws; Private agreements among SHAREHOLDERS; Agreement between shareholders and the corporation. THIRD parties (e.g., buyers) ARE NOT bound by transfer restrictions unless they are AWARE of them. >>Restrictions PRINTED on a stock CERTIFICATE may provide CONSTRUCTIVE notice.
SH MEETINGS : REQ ANNUAL
A main purpose of the meeting to is elect DIRECTORS; IF >> directors are elected by WRITTEN CONSENT, no shareholder meeting is necessary. o Shareholders may seek a court order to compel a shareholder meeting if the annual meeting has not been held in FIFTEEN (15) MONTHS.
SH MEETING : NOTICE
NOTICE TIME - Regular Meeting - Shareholders generally must receive between 10 and 60 days’ notice before a meeting. Special Meeting - TWO (2) dates WAIVER - Shareholders may waive notice by: ATTENDING OR by sending a written confirmation that they had notice.
SPECIAL SH MEETING
MAY BE CALLED BY: 1) the board of directors or 2) shareholders who own TEN (10%) of the VOTING shares Special meetings may not go beyond the purposes noticed for the special meeting.
SH VOTING: Quorum
DEFAULT QUORUM = FIFTY (50%) is necessary before a vote may be taken at a meeting of the NUMBER of directors in ARTICLES regardless of number actually serving. The ARTICLES of incorporation MAY INCREASE the quorum requirement to any level. The articles of incorporation MAY NOT DECREASE the quorum requirement BELOW 1/3 (33%)
SH VOTING : Straight vs Cumulative
Voting for DIRECTORS by default occurs by STRAIGHT voting. >> With straight voting, a majority shareholder, or one who has more votes than any other single voting shareholder, can win every seat on the board. ARTICLES may specify CUMULATIVE VOTING >> Under cumulative voting, shareholders can pool or focus their votes on some of the board seats, thereby winning those seats.
SH VOTING : Vote Pooling Agreements
MUST: 1) be in WRITING 2) NO maximum limit
Shareholder Management Agreements
Shareholders MAY UNANIMOUSLY enter into agreements that radically change the corporate structure. They CAN: 1) ELIMINATE the board of directors 2) LIMIT the powers of the board of DIRECTORS 3) Permit one SHAREHOLDER, or any group of them, to EXERCISE corporate powers 4) Impose LIABILITY on a SHAREHOLDER for the attorney’s FEES or EXPENSES of the corporation (even though the articles and bylaws cannot do this)
SH INSPECTION RIGHTS
Shareholders MAY inspect corporate records IF their PURPOSE is to do anything that RELATES to their SH INTEREST. The corporation MAY charge the shareholder REASONABLE fees. Shareholders MUST give at least FIVE (5) DAYS notice. Inspection is LIMITED to REGULAR business HOURS at the corporation’s MAIN OFFICE. If the corporation refuses inspection, a court may summarily inspection or order inspection on an expedited basis.
DIRECT AND DERIVATIVE
SH DIRECT LAWSUIT
Suit by shareholders AGAINST the CORPORATION in their own right. UNLESS contractual or statutory violation, Shareholders MUST SHOW BOTH 1) DIRECT HARM (versus a harm they suffer because the corporation is harmed) AND 2) SEPARATE INJURY (separate and distinct from harms to other shareholders).
SH DERIVATIVE SUIT
PRIOR TO FILING > SH MUST OWN shares: 1) at the TIME of the lawsuit >AND 2) at the TIME of the wrong occurs SH MUST: 1) make DEMAND on the corporation, OR 2) demonstrate demand would be FUTILE, OR 3) Delay would lead to IRREPARABLE HARM
A corporation must maintain the following records :