Corporations Set #3 Flashcards Preview

FL Corps & Partnerships Bar Exam 2020 > Corporations Set #3 > Flashcards

Flashcards in Corporations Set #3 Deck (71)
Loading flashcards...
1

What are the five advantages of the corporate form

1. Limited liability of shareholders for corporate obligations; 2. Centralized management; 3. Continuity of existence; 4. Ease of transferring ownership; and 5. Access to capital through the sale of share

2

How does taxation of corporations work? (including small business corporations)

Corporate earnings paid to shareholders are said to be subject to double taxation; i.e., as income to the corporation and as income to the shareholder. Small business corporations may avoid this by electing taxation under Subchapter S of the IRC, which taxes corporate income directly to the shareholder in proportion to their ownership

3

Corporations qualified to do business in Florida must file an annual report with the department of state disclosing what six things

(i) the corporation's name and the state or county of incorporation; (ii) the date of incorporation, or if a foreign corporation, the date admitted to do business in this state; (iii) the address of its principal office and the mailing address of the corporation; (iv) its federal employer identification number; (v) the names and business street addresses of its principal officers and directors; and (vi) the street address of its registered office and name of its registered agent at that office

4

What is the consequence if a corporation does not follow the annual report requirement? Additionally, what is the additional obligation to the state

A corporation not complying with the annual reports requirement may not bring or defend an action in Florida courts until the report is filed, and may be involuntarily dissolved. Corporations may be required to provide certain other information to the state upon request, including the identity of ultimate equitable owners. Additionally, each corporation must maintain a registered office and agent in the state

5

Unless otherwise provided by its articles, by statute every Florida corporation has the following 18 powers

1. To sue and be sued in its corporate name; 2. perpetual duration and succession in its corporate name; 3. to have a corporate seal; 4. to purchase, receive, lease, or otherwise acquire, hold, own, use, and improve real and personal property, or any legal or equitable interest in property, wherever situated; 5. to sell, mortgage, convey, pledge, lease, exchange, create a security interest in, and dispose of all or any part of its property; 6. to lend money to and use its credit to assist its officers and employees when such may reasonably be expected to benefit the corporation; 7. to purchase, receive, subscribe for, or otherwise acquire, vote, own, hold, use, sell, mortgage, lend, pledge, or otherwise dispose of shares or interest in, or other obligations of, other corporations, partnerships, and governments; 8. to enter into contracts, borrow money, and guarantee debts (the last was doubtful at common law); 9. to lend, invest, and reinvest money for its corporate purpose; 10. to elect directors and appoint officers, employees, and agents and fix their compensation; 11. to adopt and amend bylaws for the administration and regulation of its affairs; 12. to make donations for the public welfare or for charitable, scientific, or educations purposes (charitable gifts were questionable at early common law); 13. to transact any lawful business in aid of governmental policy; 14. to pay pensions and establish pension and profit-sharing plans and other employee incentive plans; 15. to enter into general or limited partnerships or joint ventures (usually prohibited at common law); 16. to indemnify corporate officers, directors, agents, and employees and purchase liability insurance therefor; 17. to provide life insurance for its benefit on directors, officers, or employees, or on a shareholder for the purpose of acquiring shares of the deceased's stock; and 18. to conducts its business, locate offices, and exercise all other powers necessary or convenient to effect its purposes, i.e., so-called implied or incidental powers

6

To what extent may corporations offer political contributions

Corporations may contribute within limits to candidates for state or local office. They are otherwise as free as individuals to expend funds to support or oppose ballot referendums or a candidate for political office, as long as the spending is independent of a candidate

7

What may a corporation be liable for

Corporations are liable for their contracts and for torts committed by their agents. A corporation may be held liable for punitive damages if an employee or agent engages in intentional misconduct or is grossly negligent and the corporation participates in or condones the conduct or is itself grossly negligent

8

If a corporation enters into a contract that is beyond its powers to act (called an ultra vires contract under common law), that fact generally cannot be used as a defense to enforcement of the contract, except for three applications:

(i) in a proceeding by a shareholder to enjoin the corporation's actions; (ii) in a direct or derivative action by the corporation against a director, officer, employee, or agent of the corporation; or (iii) in a proceedings by the Department of Legal Affairs to enjoin the corporation from unauthorized business

9

What is a basic exam tip to remember about the power of corporations in FL

Given the broad statutory powers conferred on Florida corporations by statute, corporations generally can do anything that is rationally related to a business purpose (except donate to candidates for federal office). Thus, unless a corporation's articles restrict its powers, you generally should not find any rational act to be beyond its "powers to act." If you do find an act to be ultra vires, remember that ultra vires defense is very limited. Therefore, you should not allow a corporation to get our of a contract merely because the contract is outside the corporation's powers

10

What are the requirements for the incorporators upon corporation formation

One or more natural persons, or an entity such as a corporation, partnership, or association, may act as an incorporator. No further qualifications, such as age, residency, or citizenship are required

11

What do the articles of incorporation constitute

The agreement among the incorporators regarding the details of the corporation's organization

12

What six things MUST the articles of incorporation state

(i) the corporation's name, which must indicate the corporate status; (ii) the number of shares and the distinguishing characteristics of each class or series; (iii) the address of the initial registered office; (iv) the name of the initial registered agent together with the agent's written acceptance; (v) the names and addresses of the incorporators; and (vi) the address of the principal office, if known, and the mailing address of the corporation

13

What other five things MAY the articles of incorporation include

(i) the number of directors constituting the initial board, and the names and addresses of each member thereof; (ii) the par value of stock or a statement that stock shall have no par value; (iii) the imposition of personal liability on shareholders to a specific extent and on specific conditions; (iv) the initial purposes, which may include any lawful business; and (v) any other provision, not inconsistent with law, regarding managing the business or defining powers of the corporation, directors, and shareholders

14

What is the procedure required to incorporate, and when does corporate existence begin

The incorporators deliver the articles to the department of state, which files them if all legal requirements are met. Corporate existence begins upon filing

15

What are the contents of the organizational meeting that directly follows incorporation

After incorporation, the initial directors (if named in the articles of incorporation) or the incorporators will hold an organizational meeting to complete the organization of the corporation by appointing officers, adopting bylaws, etc. The directors or incorporators calling the meeting must give at least two days' notice to each director or incorporator, stating the time and place of the meeting. These actions can be taken without a meeting if evidenced by a written consent describing the action taken and signed by each incorporator or director

16

Who adopts the initial bylaws and what is contained in them

The incorporators or board of directors will adopt initial bylaws for the corporation, unless that power is reserved to the shareholders by the articles of incorporation. The bylaws may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the articles of incorporation

17

How strongly are defective formations given application in Florida?

The common law (defective formation) concepts of de jure corporation, de facto corporation, or corporation by estoppel have limited application under Florida law, where the filing of the articles is deemed conclusive evidence of valid incorporation, except as against the state

18

What is de jure corporation

At common law, a de jure corporation was formed upon substantial compliance with all mandatory requirements for incorporation, and its corporate status could not be challenged by anyone, including the state

19

What is de facto corporation

A de facto corporation may exist even if there is a substantial defect in formation, provided there has been a good faith effort to incorporate, colorable compliance with the law, and actual use of corporate status. The de facto corporation doctrine is not available if the defendant knew of the lack of incorporation

20

what is corporation by estoppel

Corporation by estoppel is an equitable doctrine that may be applied when persons have dealt with a defectively formed corporation as if it were a legal corporation. These persons may be estopped from avoiding contracts or attempting to hold shareholders personally liable on grounds of defective corporate status. The doctrine is normally not applicable in tort actions, where there has been no course of dealing.

21

In Florida, when can a person be held personally liable for a defectively formed corpoation

Only if the person purports to act on behalf of the corporation knowing that there was no valid incorporation

22

What is the liability level of corporate shareholders when the corporate veil is pierced

Shareholders active in the business may be held jointly and severally liable as if they were partners, but inactive shareholders are generally not held liable

23

What is the alter ego doctrine

The court might disregard the corporate entity when the corporation appears to be the alter ego of the shareholders and used by them as a conduit for their personal affairs. Florida law requires a showing of improper conduct.

24

What is the deep rock doctrine

In bankruptcy proceedings, capital contributions that are denominated as "loans" by shareholders of close corporations may be subordinated to debts owed to outsiders

25

In what three situations may a parent corporation be liable for the debts of a subsidiary

When the subsidiary is inadequately capitalized, intermingled with the parent, or otherwise not a true distinct entity

26

What are the two things that compose the capital structure of a corporation and what does each entitle the holder to?

Capital structure refers to long-term investment in the corporation, including stock (representing an ownership interest) and long-term debt such as bonds (representing a creditor interest). The structure may also be viewed in terms of senior securities generally having a fixed, priority claim to income (e.g., preferred stock and bonds), and equity securities, with a claim only to residual earnings (e.g., common stock).

27

What does authorized capital refer to

Authorized capital refers to the number and kinds of shares provided for in the articles of incorporation, whether or not actually issued

28

What are the authorized capital requirements of common stock and preferred stock

There must be at least one class of common stock (voting or nonvoting) representing the residual ownership of the corporation and claim to assets upon liquidation. Preferred stock (voting or nonvoting) may be of several different kinds, generally with a right to be paid a fixed dividend ahead of any dividend payments to holders of common stock. The precise nature and terms of such preferences must be: (i) stated in the articles of incorporation and (ii) either set forth or summarized on the stock certificates.

29

On liquidation, what are preferred shareholders usually accorded before common shareholders

Preferred shareholders are usually accorded the right to receive a stated value for their shares, plus any accumulated but unpaid dividends, before the common shareholders receive anything for their shares

30

What are subscription agreements, and how long does the Florida statute make preincorporation subscription agreements irrevocable for?

A subscription agreement is a contract under which the subscriber agrees to purchase a certain number of shares at a specified price. At common law, subscription agreements were generally revocable until adopted by the corporation unless more than one subscriber was party to the agreement, in which case some courts would hold the agreement enforceable on the theory that the mutual subscriptions provided adequate consideration. The Florida statute makes preincorporation subscription agreements irrevocable for six months unless the agreement provides otherwise, or all subscribers consent to revocation.