FL - Corporations Flashcards Preview

Bar Exam - FL > FL - Corporations > Flashcards

Flashcards in FL - Corporations Deck (57)
Loading flashcards...
1

NATURE AND ADVANTAGES OF THE CORPORATION

Obligations To State

Annual Report

Every domestic corporation and foreign corporation qualified to do business in Florida MUST file an annual report with the dept of state disclosing:

(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 ADDRESS OF ITS PRINCIPAL OFFICERS AND DIRECTORS; and

(vi) the street ADDRESS OF ITS REGISTERED OFFICE AND NAME OF ITS REGISTERED AGENT at that office

Note: a corporation that fails to file an annual report is barred from bringing or defending any action in the Florida courts until the report is filed, and is also subject to involuntary dissolution. The dept of state may prescribe the use of the uniform business report of annual reports.

2

CORPORATE POWERS AND LIABILITIES

Corporate Powers

Statutory Powers

** To LEND MONEY to and use its credit to assist its officers and employees when such may reasonably be expected to benefit the corporation

** a Not For Profit corporation is not allowed to Loan Money

3

CORPORATE POWERS AND LIABILITIES

Ultra Vires Doctrine

The actions or contracts of a corporation are said to be "ultra vires" when they are BEYOND the powers expressly conferred on the corporation by law or its charter or implied from its stated purposes.

Ultra vires acts should be distinguished from illegal acts or acts that, although within the powers of the corporation, have been exercised in an improper or unauthorized manner.

4

CORPORATE POWERS AND LIABILITIES

Ultra Vires Doctrine

Modern Statutes

Exceptions : Against Officers or Employees

Like the Model Act, the Florida Statute permits the corporation (either directly r derivatively by its shareholders) to bring suit against the incumbent or former officers, employees or agents to recover damages for past ultra vires acts resulting in loss or harm to the corporation. They may also be enjoined from doing any ultra vires act in the future.

5

FORMATION

Contents of Articles

Mandatory Provisions

The Articles must be in WRITING and contain the following elements:

(i) The NAME of the corporation, which must be distinguishable from all other entites authorized to do business in Florida and must contain the word "corporation" "company" "incorporated" or the abbreviation "corp." "co." or "Inc." to clearly indicate that its a corporation.

Note : a name is not considered distinguishable merely because of punctuation or because it contains an abbreviation sufficient, plural or the word "and"

(ii) the aggregate NUMBER OF SHARES that the corporation is authorized to issue;

(iii) if shareholders are to be given PREEMPTIVE RIGHTS to acquire shares issued subsequently by the corporation, a provision setting forth the extent of such rights must be included. In the absence of any provision in the articles, shareholders h nave no preemptive rights;

(iv) the street address of the corporations INITIAL REGISTERED OFFICE in FL and the name of its initial registered agent, together with the agents written acceptance

(v) the NAMES AND ADDRESSES OF THE INCORPORATIONS ; AND

(vi) the street ADDRESS OF THE INITIAL PRINCIPAL OFFICE, if known and if different the mailing address of the corporation

6

FINANCE

Capital Structure

Authorized Capital

Common Stock

A corporation must have at least one class of common stock, since it represents the residual ownership and claim to assets upon liquidation. It may either be voting or nonvoting.

7

FINANCE

Capital Structure

Authorized Capital

Preferred Stock

Standing alone the term "preferred" is meaningless, it must be viewed in relation to its preference or priority as to dividends and as to assets at liquidation. Preferred stock may be either voting or nonvoting and may include a variety of preferences. The precise mature 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

8

FINANCE

Capital Structure

Authorized Capital

Preferred Stock

Liquidation Preference

On liquidation, the preferred shareholders are usually accorded the right to receive a state value for their shares, plus any accumulated but unpaid dividends, before the common shareholders receive anything on their shares

9

FINANCE

Agreements to Buy Stock

Unless revered to shareholders in the articles, the board of directors decides when and how many f the shares authorized in the articles shall be issued, as well as the subscription price, method of issue, and to whom the shares will be sold. In exercising its discretion, the board is limited by a number of legal requirements.

10

FINANCE

Agreements to Buy Stock

Subscription Agreements

A subscription agreement is a contract by which the subscriber agrees to purchase a certain number of shares of stock of the corporation at the subscription price specified in the agreement.

How to raise money for corporations..

11

FINANCE

Agreements to Buy Stock

Subscription Agreements

Revocability

Common Law and FL Statute

Common Law: preincirporation subscription agreements, in the absence of statute, are usually revocable until adopted by the corporation after its formation, unless more than one subscriber is party to the agreement, in which case some courts hold the agreement enforceable on the theory that the mutual subscriptions provide adequate consideration.

FL Statute: The flrohia statute provides that a written reincorporation agreement is irrevocable for 6 months unless provides otherwise, or unless all the subscribers consent to revocation

12

FINANCE

Agreements to Buy Stock

Preemptive Rights

To protect shareholders from dilution of their propoertionate interest in the corporation, the courts developed the doctrine of preemptive rights. The problem of dilution is especially critical in the close corporation where propoertional ownership is delicately balanced and is likely to affect control. Under the FL statute, shareholders have NO PREEMPTIVE RIGHTS to acquire unissued shares or treasury shares unless and only to the extent that such rights are expressly provided in the articles of incorporation.

Basically a right of first refusal.

13

FINANCE

Financial Assets -- UCC Article 8

Restrictions on Transfer of Stock

Restrictions on Sale must Be Reasonable

It is quite common in close corporations to have buy-sell agreements and agreements giving a right of first refusal on the sale of stock. Generally, restrictions on the sale of stock will be enforced as long as they are REASONABLE. It has been held unreasonable to require written permission to transfer stock. By statute, every certificate representing shares that are restricted as to sale, disposition, or other transfer must set forth or summarize such restriction or state that the corporation will furnish a full statement thereof.

14

INTRACORPORATE GROUPS

Promoters

Definition of Promoter and Incorporator

A PROMOTER is a person who undertakes to form a corporation and to procure for it the rights, capital, labor, facilities, and other necessities to carry out the purposes set forth in its charter and to establish it as fully able to do its business.

Normally, attorneys and other individuals acting in a professional advisory capacity are NOT considered promoters of the corporation. Promoters often act as incorporate; however, this is not necessary to make one a promoter. (An INCORPORATOR is one who signs the articles of incorporation)

15

INTRACORPORATE GROUPS

Promoters

Contracts on Behalf of the Corporation

Prior to incorporation the corporate entity does not exist; hence, it is not bound on reincorporation contracts entered into by the promoters on behalf of the corporation or in its name.

The promoters, on the other hand, are bound by such contracts; all persons purporting to act as or on behalf of a corporation having actual knowledge that there is no incorporation under Chapter 607 are JOINTLY AND SEVERALLY LIABLE for ALL liabilities created while so acting, EXCEPT for liabilities created as to personals having ACTUAL knowledge that no incorporation took place. However, the corporation may become liable on promoters' contracts by "adopting" them. (There can be no "ratification in the technical agency sense since the promoters cannot be agents of a nonexistent principal.)

16

INTRACORPORATE GROUPS

Shareholders

Management Rights

Although the shareholders collectively own the corporation they have virtually NO power to control directly the day-to-day management of corporate affrays. This power is normally vested in the board of directors.

However, the FL statute, like the Model Act, provides that this norm may be aries in the articles by vesting power of management in the shareholders. Shareholders also have several indirect methods to attain their goals:

(i) election of directors
(ii) approval of amendments to articles
(iii) approval of certain fundamental changes such as merger, sale of assets, or dissolution
(iv) amendment of bylaws when provided by the articles

17

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Annual Meeting

An annual meeting of the shareholders is held for the election of directors and such other business as may be necessary or appropriate. If the annual meeting is not held within any 13 month period, any shareholder may apply to the court for an order requiring the meeting to be held

18

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Attendance Via Remote Communication

If authorized by the BOD, shareholders and proxy holders not physically present at an annual meeting may participate and may be deemed present and vote by means of remote communication. the same is true for special meetings.

19

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Special Meetings

Special meetings of the shareholders may be called for any appropriate purpose by the BOD, the holders of at least 1/210 of all the outstanding voting shares or such other persons may be authorized in the articles or bylaws. Only business within the purpose or purposes described in the notice may be conducted.

20

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Notice

Write notice, including the purpose of special meetings, must be given at least 10 DAYS in advance to each shareholder of record entitled to vote at the meeting. Notice may be given either personally or by mail to the shareholder's record address. No further notice is necessary in the event of adjournment.

21

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Record Date

The day on which eligibility to vote is determined is known as the record date. The record date is fixed by the BOD and may NOT BE MORE THAN 70 DAYS PRIOR to the meeting. After the record date, the stock transfer books are closed until the meeting, and the list of eligible voters is determined. If no record date is fixed by the board, the close of business on the date before the first notice is delivered to the shareholders is the record date.

*10 days before

22

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Voting List

Must be provided at least 10 days before each shareholder's meetings

23

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Proxies

Every shareholder entitled to vote may authorize another person to act for him by written proxy. A shareholder may apprint a proxy by signing an appointment form or transmitting a telegram or other electronic communication.

24

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Proxies

Revocation

Proxies expire after 11 MONTHS UOA.

Revocable at pleasure of the shareholder unless the proxy provides it is irrevocableAND the pr proxy holder has an interest in the shares. A proxy may be revoked even if otherwise irrevocable by a bona fide purchaser of the shares without notice of the proxy

25

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Election of Directors

Election of directors is by PLURALITY (51%) vote of the shareholders unless the articles provide for cumulative voting. The bylaws have shares listed on National Securities exchange at the time of adoption may fix a greater voting requirement for he election of directors. Such a bylaw provision or amendment adopted by shareholders may not be further amended or repealed by the BOD

26

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Election of Directors

Cumulative Voting

The articles may provide for cumulative voting. This is intended to aid minority shareholders in obtaining some representation on the BOD.

DEFINITION: Cumulative voting means that each shareholder is entitled to a number of votes equal to the number of his voting shares multiplied by the number of directors to be elected and may case his votes for any one candidate or divide them among any number of candidates.

27

INTRACORPORATE GROUPS

Shareholders

Shareholder's Meetings

Election of Directors

Fundamental Changes

Amendments to the articles of incorporation, merger, share exchange, sale of substantially all corporate assets or dissolution must normally be approved by the shareholders. Whenever an amendment, plan of merger, or consolidation contains a provision hat adversely affects the shares of a particular class in the manner enumerated in the statute, the holders of each such class are entitled to vote separately as a class on the amendment whether or not the class is entitled to vote by the terms of the articles and the amendment must be approved by the ABSOLUTE MAJORITY of each such class and the total shares entitled to vote

non vote = no except when fundamental changes affect our stock

28

INTRACORPORATE GROUPS

Shareholders

Shareholder Rights

Dividends

Legality of Payment

The florida statute sets forth 2 standards (solvency tests) for payment of dividends, BOTH of which must be met in every instance :

(i) equity test

(ii) balance sheet test

29

INTRACORPORATE GROUPS

Shareholders

Shareholder Rights

Dividends

Legality of Payments

Equity Test

The first standard is the traditional equity or cash flow test. A dividend is permissible only if, after giving it effect, the corporation will be able to pay its debts as they become due in the usual course of business

30

INTRACORPORATE GROUPS

Shareholders

Shareholder Rights

Dividends

Legality of Payments

Balance Sheet Test

The second standard is the so-called bankruptcy or balance sheet test.

Dividends are limited to the amount by which TOTAL ASSETS of the corporation EXCEED the sum of the TOTAL LIABILITIES and the LIQUIDATION OF PREFERENCES of preferred shares.