florida corporations Flashcards

Question

shareholder meetings: quorum

Answer 1

* votes needed to pass * quorum is majority number of shares entitled to vote * no quorum, no meeting * at healst half of shareholders need to present at voting to have quorum * of half shareholder, only need majority to pass something (half+1)

Answer 2

give someone else to vote on behalf as instructed to

Answer 3

* fl allows for this * to alleviate straight voting, there is an optional voting system (can be in AOI or bylaws, or anywhere) gives you number of votes equal to number of shares you have times the number of open seats on boarf of directors * way to enfranchise minority voters ## Footnote With cumulative voting, A can vote all 90 shares (30 votes per director times three open positions) for one director. If there are four candidates running for three board positions, A can vote all 90 shares for Candidate 1. B (with 210 votes) can vote 91 shares for Candidate 2 and 91 shares for Candidate 3. However, B only has 28 shares remaining to vote for Candidate 4, which is not sufficient to beat Candidate 1. The result is that A’s choice is guaranteed a place on the board.

Answer 4

* when shareholders voting for board of directors, number of votes you get in ordinary stragiht voting is number of shares you have * this blocks power of minority shareholders, disenfranchising them * minority shareholders sometimes never allowed to vote in director

Answer 5

* shareholder rights to dividends do not exist * solely up to board of directors whether to grant any type of dividends * protected by business judgment rule

Answer 6

* another way for shareholders to get power as a group * trust is like its own separate entity, own assets, legal title to assets, but assets managed for beneficiary (one or more people), beneficiary has equitable title (benefit to asset) * trust created where shareholders transfer as res of trust, their shares into trust * this is an irrevocable transfer * beneficiaries tell trustee what they want him to do * when dividends issued, trust owns shares and received dividends, which it distributes to people who created trust (if beneficiary has died, everyone who gets in shares gets back a voting trust certificate) * So put In shares in trust, voting certificate in exchange, this certificate is now tradeable with people, like a share --> now that person can get dividends

Answer 7

* another way for shareholders to get power as a group * contract, instead of trustee we need to agree by way of k that we will vote a certain way * we as people entering into agreement, pool resources to vote the way k says to vote

Answer 8

Unless a corporation has formed a shareholder management agreement, it must establish a board of directors. The board has ultimate authority for exercising corporate power and it also manages and directs the decisions of the corporation. The board can appoint and authorize officers and employees to carry out the corporation’s day-to-day business.

Answer 9

The number of directors may be established in the articles of incorporation or the bylaws. Firms may also set a range * Can increase or decrease the number of directors by amending the bylaws * If you decrease the number of directors, it will not shorten that term for a director * you do not need any qualifications to serve as a director, unless there is something specified in articles or bylaws * you do not need to be a fl resident elected by shareholders * The directors are selected by shareholder vot at the annual meeting. * directors in fl elected by plurality vote, person who gets most votes * if the articles or bylaws fail to allow cumulative voting, the statutory default is a plurality of the votes cast. * if board of directors running for re-election, they can be removed without cause by shareholders corp with 100 or less shareholders can dispense with having board of directors ## Footnote NOTE ON PLURALITY VOTING: if AOI speciies there are to be a specific amount of members on the board of directors (ex: 2), then each shareholder will be able to use the total of their shares FOR EACH OPEN POSITION example: A owns 30 shares of X, Inc. stock. B owns the remaining 70 shares. X, Inc. has three open positions on the board of directors. Without cumulative voting, A can vote 30 shares for a candidate for each of the open positions, while B can vote 70 shares toward a different candidate for each open position. The result is that A is unable to elect any of the three directors because B owns a majority of the shares. example: meaning if shareholder has 45 shares, she can use 45 shares for one person and 45 shares for the second person she wants on the board, can even do 45 shares for one person, 44 for a second, and 1 for the last position)

Answer 10

A director will typically serve a one-year term * A director may serve for a longer term, however, if the board is staggered * longest permissible term for a director is 3 yrs * A director can continue to serve until the director's successor is elected and qualified (or until the number of directors is decreased) even though the director’s term has expired (unless the articles of incorporation provide otherwise). Vacancies: filled by shareholder vote, director vote, or by a vote of a majority of the remaining directors A director may resign at any time by delivering written notice of resignation to the board, its chair, or the secretary. shareholders can remove a director at a meeting called for that purpose * dont need cause to remove (unless AOI says so) * you can remove a director elected by cumulative vote * The director cannot be removed when votes sufficient to elect the director are cast against the removal decision Directors may also be removed by court order if director committed fraud against the corporation or its shareholders, grossly abused the position of director, or intentionally harmed the corporation—and the court deems this in the best interest of the corporation. A director **may not** be removed by the other directors of the corporation.

Answer 11

* like shareholders, can only act as body, when they're in a meeting they have power * in person, virtual * meeting types: regular (every mo or 2 mos), no notice needed; special (need 2 days notice) * A director may waive notice of a special meeting, explicitly or by attending the meeting * subject to corporation's articles or bylaws, a regular board meeting may be held without notice of the date, time, place or purpose of the meeting * Any meeting may be held outside of Florida unless the articles state otherwise * the director does not need to be physically present at the meeting, they just need to be able to hear each other. * a majority of directors present, even if not a quorum, may adjourn any meeting to another time and place BUT NOTICE OF AN ADJOURNED MEETING MUST BE GIVEN TO THE DIRECTORS WHO WERE NOT PRESENT AT THE TIME OF ADJOURNMENT * The board may also take action without meeting if each director signs a written consent (unless the articles or bylaws require otherwise).

Answer 12

* Typically, each director will get one vote, but the article or bylaws may provide that a director has more of less than one vote on any matter. If so, determination of a quorum and approval of the decision will be based on the number of votes (not the number of directors). (1) quorum * at least half directors present to have a meeting * you can change quorum for board of director meetings in AOI, can reduce amount of officers required, but can never be less than 1/3 * majority required to pass any business (half + 1 need to vote) * A vacant director position counts for quorum purposes even if the vacancy is due to the death, resignation, or removal of a director

Answer 13

A director may incur liability for illegal or improper action taken by the board at a meeting where the director is present even if she does not vote in favor of the action. To protect against this liability, the director must dissent by: * Promptly objecting to the holding of the meeting or the transaction of specific business at the start of the meeting; or * Vote against the action or abstain from voting (must be noted in the minutes, or else you will be liable too).

Answer 14

A board of directors may take action through committees of one or more directors Generally, a majority of the directors must vote for the creation of the committee and for the appointment of a director to the committee (unless the articles or bylaws require a greater number). * A committee may exercise the powers of the board, but a committee cannot adopt, amend, or repeal bylaws. * CAN oversee the search for and select a replacement for the current president A committee may take action on most proper matters, except a committee cannot: * Approve or propose actions that require shareholder approval * Approve a plan of merger (even if shareholder approval would not be required) * Fill vacancies on the board or a committee * Amend the articles * Adopt, amend, or repeal bylaws A publicly held corporation will typically have the following committees: * audit committee to direct responsibility for selecting, compensating, and overseeing the corporation's outside auditors. + may fix the amount and terms of a distribution after the distribution has been authorized by the board of directors. * compensation committee * nominating committee Under Sarbanes-Oxley (SOX), a corporation with stock listed on a national exchange must have an audit committee with direct responsibility to select, compensate, and oversee the auditors. * The members of this committee must also be independent directors

Answer 15

* board of directors have statutory provision to act without meeting, if unanimous written consent from board of directors for proposed action

Answer 16

* duties that board of directors, and officers, have to the corp * duty of care= duty of director/officer to act with care and prudence of ordinary prudent businessperson * court will usually not 2nd guess these decisions, in fl usually don't care for duty of care * answer choice in bar **will likely not** be that he didnt act under duty of care, **but would be** if the person is not informed about decision (owner of cruiseship asks accountant if they can afford new ship, says he only thinks so, makes no further research and buys ship) to establish that she satisfied the duty of care to a corporation, the director may rely on the performance, information, reports, and opinions of: * officers and employees of the corporation * outside attorneys, accountants, or other skilled experts retained by the corporation * a committee of the board that the director (1) reasonably believes merits confidence and (2) does not sit on (is impartial) * however, a statement of the shareholders of a corporation, even if adopted by unanimous vote, CAN NOT be relied on by the director to show that she satisfied the duty of care to the corporation.

Answer 17

* duty to remain free of personal conflicts in decision * loyal to corp above your self interest * arises commonly when you as a director have a personal stake in otucome of vote youre going to take * interested director transaction * as a director, you must disclose conflict of interest to rest of board of directors and then you have to abstain * even interested person spouse can not vote * if you do not disclose and abstain, transaction is still ok if it is deemed fair to corporation **VVVVVVV** Exceptions (i.e., ratifications) 1. A committee of the board approves the transaction with knowledge of all material facts, including the director’s personal interest and the transaction was approved by at least two directors who comprise a majority of the disinterested directors o; 2. The shareholders approve the transaction with knowledge of all material facts, including the director’s personal interest; or 3. the transaction is fair to the corporation In this context, Florida might ask: would the same result have been accomplished between two parties in an arms length transaction? **VVVVVVVVVVV** In a proceeding challenging the validity of a director's conflict of interest transaction, the challenger has the burden of proving the lack of fairness of the transaction if the: * material facts of the transaction and the director's interest in the transaction were disclosed or known to the board of directors and * transaction was approved by a vote of a majority of the disinterested directors.

Answer 18

* another duty of loyalty, besides interested director * you as director come upon business opp which corp you serve may also be interested, you have duty to inform corp of opporutnity beofre you take it * if director does not disclose, clawback * corp can sue you to force you to give all benefits back to corp

Answer 19

* any business entity can merge into another business entity * like partnership to llc, corp to parntership, partnership to corp, corp and llc mergers (usually tested)

Answer 20

In Florida, a merger must be approved by a majority vote of each class of stock entitled to vote. here, preferred stock gets to vote too The approval requires an absolute majority of the shares entitled to vote in each class * absolute majority= if there are 10,000 common stock, we would need at least 5,001 for absolute majority; if there is 500 preferred stock, we would need 251 for absolute majority; when there is both common and preferred stock we need absolute majority with BOTH separately every share has right to vote on mergers quorum rules from other meetings do not apply, only need majority + 1 of all outstanding shares present

Answer 21

* in merger one company (surviving company) swallows the other in two ways * Florida law requires that the shareholders of a corporation to be merged into another corporation approve of the merger unless the surviving corporation owned at least 80 percent of the outstanding shares of each class of stock of the merged corporation immediately prior to the merger. * Shareholder approval generally requires a majority of the shares entitled to vote for each class of stock entitled to vote. 1. shared exhange * one corp acquires all outstanding shares of other corp * merged into one * typically done w/ deals from board of directors * notify state that this has occured: articles of merger * company eaten up, erased from books 2. merger * abosrbing entity and all shareholders have to approve * notify state that this has occured: articles of merger * company eaten up, erased from books 3. short form merger * file articles of merger * when one comp owns 80% of another comps shares, can file articles of merger and eat the other one * by default, all shares owned in merger (4) No change mergers unless the articles of incorporation provide otherwise, shareholder approval of a plan of merger **is not required** if: * The corporation will survive the merger; * The articles of incorporation of the surviving corporation will remain substantively unchanged; and * Each shareholder of the surviving corporation whose shares were outstanding immediately prior to the effective date of the merger will hold the same number of shares, with identical designations, preferences, rights, and limitations, immediately after the effective date of the merger. **VVVVVVVV** *Abandonment of the merger* Unless a plan of merger prohibits abandonment of the merger without shareholder approval after a merger has been authorized, the planned merger may be abandoned at any time prior to filing the articles of merger, without further shareholder action. This can either happen through an abandonment procedure set forth in the plan of merger or, if there is not one, in the manner determined by the board. *EFFECT of completion* As soon as the merger is completed, then all rights, assets, and liabilities automatically vest in the surviving company. * Any change in ownership is not treated as an assignment of rights, assets, and liabilities. **VVVVVVVVV** *Stock Acquisition* A corporation may acquire the stock of another corporation, and thereby acquire control of that firm without conducting a statutory merger. typical formats for this transaction include: * A stock for stock exchange, where the purchasing corporation offers its shares to shareholders in the selling company. * A stock purchase, when the purchasing corporation buys stock in the selling company on the public market or through a tender offer transaction. Asset Purchase Instead of conducting a statutory merger or a stock purchase, one firm may elect to purchase all, or substantially all, of another corporation’s assets. This transaction will either be within the ordinary course of business or outside the ordinary course of business. * If within the course of business (look for a relatively small sale or purchase), the selling firm may act without shareholder approval. * outside regular course of business= if the transaction includes all or substantially all of a firm’s assets, then selling shareholder approval will be required (objecting sharehlder can use appraisal rights to force corp to buy his shares BUT MUST ASK FOR THIS BEFORE THE MERGER HAS BEEN APPROVED). * When that happens, the transferee corporation is generally not responsible to the transferor's creditors for liabilities. However, the transferee corporation may be liable if it assumes such liabilities. **VVVVVVVVV** *Conversion into a Different Entity* A Florida corporation may convert into a domestic limited liability company (LLC) and a domestic LLC may convert into a domestic corporation. Likewise, an eligible foreign corporation may convert to a domestic corporation pursuant to a plan of conversion. In general, the approval procedures for a conversion are the same as those for a merger. **VVVVVVVVV** *Change of Jurisdiction (Domestication)* If permitted by the state law of a foreign corporation, the foreign corporation may become a Florida corporation. Likewise, a domestic corporation may become a foreign corporation. In general, the approval procedures are the same as those for a merger **VVVVVVVVVV** *Appraisal Rights* A shareholder who objects to a merger or acquisition or certain other actions may be entitled to file an appraisal claim to force the corporation to buy her shares at a judicially determined fair price A shareholder who is entitled to vote on a merger, acquisition, or amendment to the articles has appraisal rights. An appraisal notice to a shareholder who demands to exercise their appraisal rights must give the shareholder **at least 40 days** but **not more than 60 days** to accept the offer. (1) shareholder eligibility events triggering appraisal rights: Consummation of a domestication or a conversion Consummation of a marger to which a domestic corporation is a party * in a merger, a dissenting shareholder is given a right of appraisal. * shareholder can force the corporation to buy his shares at a fair value as determined by an appraisal. Consummation of a disposition of all or substantially all of the corporation’s assets An amendment to the articles of incorporation or bylaws, the effect of which is to alter or abolish voting or other rights in a manner that is adverse to the shareholder’s interest (including the elimination of appraisal rights) market out exception states that appraisal claims are not permitted if the shareholder can sell his stock in a liquid and reliable market. * The corporation must notify shareholders of firm actions that will qualify for appraisal rights. * This notice must be given in advance when shareholder approvals are needed for the action. (2) Perfection of appraisal rights To perfect appraisal rights, a shareholder must 1. Not vote in favor of the proposed action 2. make a written demand for payment before the action is approved by other shareholders 3. The corporation must then provide each dissenting shareholder with an appraisal form that includes the corporation’s estimate of the fair value of the shareholder’s shares. * A shareholder can accept this value, take the money, and then cease to become a shareholder; or * The dissenter may litigate if he disagrees with this estimate. A court will then determine the fair value of the shares. **VVVVVVVVVV** *Remedy* The dissenting shareholder cannot challenge the corporate action for any reason except for fraud and illegality

Answer 22

redemption is essentially a payment (distribution) to take back stock issued that is subject to the corporation's statutory insolvency limitation Outstanding stock is stock authorized and issued by the corporation. Outstanding stock may be reacquired by the corporation through purchase or redemption. If outstanding stock is reacquired, it is considered authorized but unissued. Reacquired stock can be reissued as a distribution unless the corporation's articles of incorporation prohibit such a distribution.

Answer 23

One or more natural persons, or an entity such as a corporation, partnership, or association, may act as incorporator. A Florida corporation may have as few as one director, and one person can hold all the stock in a corporation

Answer 24

A foreign corporation transacting business without authority **cannot** bring an action in any court in Florida, until the corporation obtains authority. However, the corporation is **not barred from defending **any action in Florida. A foreign corporation that transacts business in Florida without authority is **liable** to the state in an amount **equal to all fees and taxes that would have been imposed for the years in which it failed to qualify. ** In addition, the corporation must forfeit to the state between **$500 and $1,000 for each year it failed to qualify.**

Answer 25

* The courts have full power to liquidate the assets and business of a corporation in an action by a shareholder or group of shareholders in a corporation having 35 or fewer shareholders when: 1. the corporate assets are being misapplied or wasted, or a causing material injury to the corporation; 2. or (ii) the directors or those in control of the corporation have acted, are acting, or are reasonably expected to act in an illegal or fraudulent manner.

Answer 26

A stock transfer restriction in a closely held corporation that is reasonable **does not** constitute an unenforceable restraint on alienation * example: one shareholder must give the other shareholders a right of first refusal before selling his stock However, such a restriction that is adopted through an amendment of the articles of incorporation or bylaws does not affect shares issued **before** the restriction was adopted. But this does not apply if the holders of such shares are parties to the restriction agreement or voted in favor of the restriction. example: shareholder will not be bound by restriction where the other shareholders vote to amend the bylaws OVER HIS OBJECTION to give them a right of first refusal to his stock AFTER HE HAD ALREADY ACQUIRED HIS STOCK

Answer 27

Shareholders: own the stock, the residual owners of the firm board of directors: high-level decisions, selecting the officers and employees Officers and employees: day-to-day decisions Others, including lenders, suppliers, employees, and customers

Answer 28

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.

Answer 29

A shareholder may inspect the books if he gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect them and: 1. (i) his demand is made in good faith and for a proper purpose; 2. (ii) he describes with reasonable particularity his purpose and the records he desires to inspect; 3. and (iii) the records are directly connected with his purpose.

Answer 30

* Any two or more shareholders may agree to vote their shares as specifically provided in the agreement, as they may mutually agree from time to time, or as determined in accordance with a procedure provided in the agreement. * These agreements are specifically enforceable.

Answer 31

* Directors who willfully or negligently vote to declare dividends are personally liable to the corporation to the extent of the amount paid improperly. * However, a director may avoid liability for action taken by the board by expressing his views and dissenting on the record. Florida does not allow its corporations to make distributions if they are insolvent or if the distribution would cause the corporation to become insolvent. There are two tests that a Florida corporation must pass to be solvent and able to make distributions?the equity test and the balance sheet test: * Under the equity test, a corporation must be able to pay off its debts as they come due in the ordinary course of business. * Under the balance sheet test, a corporation's total assets must exceed its total liabilities plus liquidation of preferences. In such cases, the director is entitled to **recoupment** from the **shareholder's pro rata portion of the unlawful distribution.** However, in order to recover from the shareholder, the shareholder **must have knowingly accepted a unlawful distribution.** For example, under both tests, a corporation's income ($150,000), plus its capital contributions ($50,000), minus its debts ($60,000) equal $140,000. This amount allows the corporation to pay its debts as they become due, and liabilities would not exceed assets. Therefore, a maximum dividend of up to $140,000 would be permitted. A stock split does not result in the distribution of corporate assets to the shareholders. Therefore, a stock split is not subject to the distribution insolvency tests.

Answer 32

under the Florida statute, proxies expire after 11 months unless otherwise expressly provided.

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. * The list is kept on file at the corporation’s registered office, or at the office of its transfer agent, and is subject to inspection by any shareholder. * The list must also be available for inspection any time during the meeting. * If the corporation fails to comply with these requirements, any shareholder may demand that a meeting be adjourned.

Answer 34

* whenevr corp issues additional shares, existing shareholders have right but not obligation to purchase their proportionate share of new issuance in shares in order to maintain their % in interest If a corporation does provide preemptive rights, but does not spell out the substance of those rights, then certain statutory restrictions apply. Statutory restrictions indicate there is no preemptive right with respect to: * shares issued as compensation to directors, officers, agents, or employees of the corporation * shares issued to satisfy option rights created to provide compensation to directors, officers, agents, or employees of the corporation * shares authorized in the articles and issued within six months of incorporation * shares issued pursuant to a court-approved reorganization or * shares issued for consideration other than money. **VVVVVVVVVVV** Even when the articles do provide for preemptive rights, certain statutory provisions apply in Florida except to the extent that the articles provide otherwise. This includes the statutory provision that there are **no preemptive rights with respect to shares**: * issued as compensation to directors, officers, agents, or employees of the corporation, * issued to satisfy option rights created to provide compensation to directors, officers, agents, or employees of the corporation, * authorized in the articles and issued within six months of incorporation, * issued pursuant to a court-approved reorganization, or * issued for consideration other than money.

Answer 35

**avoid** watered stock, makes directors liable for difference in par value and what it was actually sold for

Answer 36

Promoter has a right to reimbursement if held personally liable for a pre-incorporation agreement made in good faith Promoter does not automatically receive reimbursement for corporate formation costs

Answer 37

corporation is generally not liable for pre-incorporation transactions that are formed by the promoter the promoter is not understood to be acting as the corporation’s agent because corporation does not yet exist. The corporation can become liable for pre-incorporation transactions if the corporation adopts by accepting the benefits or liability

Answer 38

Convey the right, but not the obligation, to buy stock at a stated strike price The board will generally have the authority to issue these instruments and set the terms.

Answer 39

A corporation that issues stock or other securities may be required to register these securities with the Securities and Exchange Commission (the SEC). The process requires a detailed registration statement and the delivery of a prospectus to the buyers. in general, registration is only required for public offerings Sale of stock to just a few investors, especially sophisticated investors may not trigger registration requirements. If a corporation fails to comply with the registration requirement, a purchaser of the security may sue to rescind the transaction and may also recover compensatory damages caused by an error or omission in the registration statement. Who can be liable? You name it: * The issuing corporation * Any signer of the registration statement * A director of the issuing corporation * An expert named as having prepared or certified the statement (e.g., an auditor) * The underwriter Florida also has state securities laws (known as “blue sky” laws) that make concealment of material facts and other types of fraud illegal.

Answer 40

(1) Rule 10b-5: "BID" Governs the fraudulent purchase or sale of any stock of other security To pursue a private cause of action based on 10b-5, a plaintiff must meet seven requirements (BID BIRD): 1. B: The plaintiff must have Bought or sold a security 2. I: The transaction must involve the use of interstate commerce 3. D: The defendant must have engaged in fraudulent or Deceptive conduct 4. B: The conduct must relate to Basic material information 5. I: The defendant must act with Intent or recklessness (called scienter) 6. R: The plaintiff must have Relied on the defendant’s conduct 7. D: The plaintiff must have suffered Damages or harm from this conduct *bought or sold security* Either the sale or purchase of a security by the plaintiff is required. forced sale doctrine: the forced exchange of shares in a merger will count as a sale *Use of interstate commerce* Look for sales involving the use of a telephone, mail, email, or a national securities exchange. *Deceptive or fraudulent conduct* There are two primary ways in which the defendant can engage in such conduct: (1) make an untrue statement of material facts, or (2) fails to disclose a material fact that is necessary to prevent statements already made from being misleading. * opinions and predictions do not count * If a statement of opinion or prediction is accompanied by adequate cautionary language, it will not constitute a misleading statement (2) 10b-5: Nondisclosure and insider trading A person who merely possesses material inside information will not be liable under 10b-5 unless she also trades a security on the basis of this knowledge (the abstain or disclose rule) A person is presumed to have traded on the basis of nonpublic information if she possesses at the time of trade (except trades made according to a pre-existing written plan) Four types of traders may be liable for failure to disclose inside information in connection with a trade: 1. insiders: the directors of a corporation 2. Constructive insiders: professional advisors who have access to inside information based on a relationship with the corporation (e.g., lawyers, accountants, consultants) 3. Tippee: a person who receives information from an insider (or constructive insider) with the expectation that she will trade. * But the tipper must receive a personal benefit from the tip and the tippee must know that the information was provided by the tipper in violation of the insider’s duty to the corporation * A person provided information by an insider or constructive insider with the expectation that the information will be used to trade stock is a tippee and required to disclose the information. 4- Misappropriator: a person who wrongfully uses confidential information of one party in order to trade stock in a different corporation. (3) rule 10b-5: BIRD *Basic materiality* The defendant’s conduct must involve the misuse of material information Something a reasonable investor would find important when deciding to buy or sell. *intent* A person is not strictly liable for making a false or misleading statement. Similarly, negligently making the statement is not enough to invoke 10b-5 liability. The defendant must act with fault, known as misappropriators, i.e., making the statement intentionally or recklessly. *Reliance* The plaintiff must also establish that he relied on the defendant’s fraudulent conduct. This has been relaxed considerably by the theory of fraud on the market * This says that a misleading public statement (e.g., a press release) is presumed to satisfy the reliance element * Think of this as the plaintiff relying on the integrity of the market. This reliance by the plaintiff must also be justifiable *damages* A plaintiff must establish that the defendant’s fraudulent conduct caused damages or harm. Consider the following: * out of pocket losses are calculated as the difference between the value of the security and the price paid by the plaintiff. * Rescission will be permitted if the defendant was involved in the transaction as a buyer or seller. * Punitive damages are not allowed

Answer 41

Governs insider short-swing * An insider should be restricted from rapid trading profits related to her firm’s stock. * The reason for trading does not matter so this law can apply without insider information or fraud. Only some publicly traded corporations are protected by Section 16(b): * Corporations with securities that trade on a national exchange * Corporation with more than $10 million in assets and more than 500 shareholders Only a few people are governed by Section 16(b): * corporate insiders such as officers and directors * Shareholders holding more than 10% of any class of stock These insiders are required to report a change in stock ownership to the SEC to encourage compliance. During any six-month period, an insider who both buys and sells his corporation’s stock is liable to the corporation for any profits. * These are computed by matching the highest sales price with the lowest purchase price, the next highest sales price with the next lowest purchase price, and so on. * Losses are ignored, and all shares are matched just once.

Answer 42

The primary state cause of action for people who have traded stock is the tort of fraud

Answer 43

Convey the right, but not the obligation, to buy stock at a stated strike price The board will generally have the authority to issue these instruments and set the terms.

Answer 44

A corporation that issues stock or other securities may be required to register these securities with the Securities and Exchange Commission (the SEC). The process requires a detailed registration statement and the delivery of a prospectus to the buyers. in general, registration is only required for public offerings Sale of stock to just a few investors, especially sophisticated investors may not trigger registration requirements. If a corporation fails to comply with the registration requirement, a purchaser of the security may sue to rescind the transaction and may also recover compensatory damages caused by an error or omission in the registration statement. Who can be liable? You name it: * The issuing corporation * Any signer of the registration statement * A director of the issuing corporation * An expert named as having prepared or certified the statement (e.g., an auditor) * The underwriter Florida also has state securities laws (known as “blue sky” laws) that make concealment of material facts and other types of fraud illegal.

Answer 45

A tender offer is an offer to shareholders of a publicly traded corporation to purchase for a fixed price. This is often used to conduct a hostile takeover. Several federal rules govern tender offers, but for now, just remember that a person who acquires more than 5% of any class of stock needs to file a statement with the SEC revealing: * Her percentage ownership * Her source of funding * Her purpose in acquiring the stock

Answer 46

Convey the right, but not the obligation, to buy stock at a stated strike price The board will generally have the authority to issue these instruments and set the terms.

Answer 47

A corporation that issues stock or other securities may be required to register these securities with the Securities and Exchange Commission (the SEC). The process requires a detailed registration statement and the delivery of a prospectus to the buyers. in general, registration is only required for public offerings Sale of stock to just a few investors, especially sophisticated investors may not trigger registration requirements. If a corporation fails to comply with the registration requirement, a purchaser of the security may sue to rescind the transaction and may also recover compensatory damages caused by an error or omission in the registration statement. Who can be liable? You name it: * The issuing corporation * Any signer of the registration statement * A director of the issuing corporation * An expert named as having prepared or certified the statement (e.g., an auditor) * The underwriter Florida also has state securities laws (known as “blue sky” laws) that make concealment of material facts and other types of fraud illegal.

Answer 48

(1) voting eligibility Typically, ownership of stock entitles a shareholder to vote one vote per share, but corporations can restrict voting rights to certain classes of stock (e.g., voting stock) or give some classes of stock extra voting power (e.g., ten votes per share). Joint owners: * Who may vote shares that are co-owned? either co-owner can vote * What happens if more than one co-owner votes? The act of the voting majority binds all joint owners. * If the votes are evenly split, the votes are divided equally (for and against the matter). an executor, guardian, or conservator can vote shares that are owned by another person a corporate owner of another corporation’s stock is entitled to vote Treasury stock, stock that is owned by the issuing corporation, can not be voted Who gets to vote when stock is sold or transferred? * Typically, the board of directors will set a record date prior to the date of the vote. * This record date cannot be more than 70 days before the vote. * All owners on the record date are typically entitled to vote the shares, even if they sell before the meeting. (2) decisions requiring shareholder votes The primary issue is the selection of the board of directors Shareholders will also vote on fundamental corporate changes, such as an amendment to the articles or a merger

Answer 49

Convey the right, but not the obligation, to buy stock at a stated strike price The board will generally have the authority to issue these instruments and set the terms.

Answer 50

A corporation that issues stock or other securities may be required to register these securities with the Securities and Exchange Commission (the SEC). The process requires a detailed registration statement and the delivery of a prospectus to the buyers. in general, registration is only required for public offerings Sale of stock to just a few investors, especially sophisticated investors may not trigger registration requirements. If a corporation fails to comply with the registration requirement, a purchaser of the security may sue to rescind the transaction and may also recover compensatory damages caused by an error or omission in the registration statement. Who can be liable? You name it: * The issuing corporation * Any signer of the registration statement * A director of the issuing corporation * An expert named as having prepared or certified the statement (e.g., an auditor) * The underwriter Florida also has state securities laws (known as “blue sky” laws) that make concealment of material facts and other types of fraud illegal.

Answer 51

(1) voting eligibility Typically, ownership of stock entitles a shareholder to vote one vote per share, but corporations can restrict voting rights to certain classes of stock (e.g., voting stock) or give some classes of stock extra voting power (e.g., ten votes per share). Joint owners: * Who may vote shares that are co-owned? either co-owner can vote * What happens if more than one co-owner votes? The act of the voting majority binds all joint owners. * If the votes are evenly split, the votes are divided equally (for and against the matter). an executor, guardian, or conservator can vote shares that are owned by another person a corporate owner of another corporation’s stock is entitled to vote Treasury stock, stock that is owned by the issuing corporation, can not be voted Who gets to vote when stock is sold or transferred? * Typically, the board of directors will set a record date prior to the date of the vote. * This record date cannot be more than 70 days before the vote. * All owners on the record date are typically entitled to vote the shares, even if they sell before the meeting. (2) decisions requiring shareholder votes The primary issue is the selection of the board of directors Shareholders will also vote on fundamental corporate changes, such as an amendment to the articles or a merger

Answer 52

The other main type of agreement is a shareholder management agreement. Allows shareholders to agree to alter the way in which a corporation is managed even though the agreement is inconsistent with normal statutory governance provisions These types of agreements can adjust numerous matters, including: * Elimination of the board of directors or restrictions on the discretion or powers of the board * requiring dissolution of the corporation at the request of one of the shareholders * authorizing a particular shareholder to manage the affairs of the corporation * Authorization or making of distributions, even if not in proportion to the ownership of shares * Determination of who is a director or officer, their terms of office, and the manner of their selection * Exercise or division of voting power by or between the shareholders and directors * Transfer or use of property or the provision of services between the corporation and any shareholder, director, officer, or employee of the corporation * Transfers to one or more shareholders or other persons of all or part of the authority to exercise the corporate powers or to manage the business and affairs of the corporation *shareholders **may not** enter into agreements that exculpate all directors from personal liability as it violates public policy* creation * Shareholder management agreement must be set forth or referenced either in: 1. Articles or the corporate bylaws and approved by all persons who are shareholders at the time of the agreement; or 2. Written agreement that is signed by all persons who are shareholders at the time of the agreement and that is made known to the corporation. * Similarly, the agreement may be amended or terminated only by all persons who are shareholders at the time of amendment or termination. Other implications * Existence of an agreement must also be noted conspicuously on each certificate * If no certificates, in the information statement the corporation must send to the shareholder * A person who purchases stock in a corporation with a management agreement without knowledge of the agreement can rescind the purchase. * Agreement ceases to be effective when the corporation becomes a public corporation * If the agreement limits the discretion or powers of the board of directors, then the directors are relieved of liability for acts or omissions to the extent of the limitation, and the persons in whom such discretion or powers are vested are subject to liability.

Answer 53

note on shareholder duties: Shareholders do not owe a fiduciary duty to their corporations, but a duty to minority shareholders may arise when the controlling shareholder is * selling her interest to an outsider * seeking to eliminate other shareholders from the corporation * receiving a distribution denied to the other shareholders BUT a controlling shareholder may sell her interest to a minority sharheolder without triggering a fiduciary duty to the corporation's minority shareholders The duty of loyalty requires directors (and officers) to act in a manner that the director reasonably believes is in the best interests of the corporation A director engaged in a conflict-of-interest transaction, also known as self-dealing, violates her duty of loyalty. **VVVVVVVVVVVV** *direct shareholder actions* Distinguish a plaintiff shareholder lawsuit from a shareholder’s defendant Shareholder may initiate direct legal action against the corporation in two basic circumstances: (1) An action to recover for harm linked to their rights as shareholders * Ask whether the shareholder, rather than the corporation, has suffered the harm * Example: interference with shareholder voting rights (2) An action that does not arise based on the plaintiff’s status as a shareholder

Answer 54

Shareholder seeks to compel the corporation to file a lawsuit to recover for harm suffered by itself Any recovery will go to the corporation and the shareholder benefits personally only to the extent that the recovery increases the value of her stock (1) standing to bring a derivative suit In order to commence a derivation action, the claimant must: * Be a shareholder at the time of the act or omission, **or** Become a shareholder through a transfer by operation of law from someone who was a shareholder at the time of the act or omission * At least one court has held that the shareholder must continue to be an owner through the lawsuit. * shareholder does not need standing to remove a director from office if the director engaged in *fraudulent* conduct with respect to the corporation and removal would be in the best interest of the corporation. a beneficial owner can bring a derivative claim (2) demand Plaintiff must make a demand upon the board to take action. note: fl adopted futility theory of demands, if demand is not made on baord, shareholder must state why not in complaint shareholder can get control: * If demand is made and there is no response for 90 days, then the shareholder may file an action * if waiting would lead to irreparable harm shareholder does not need to wait the full 90 days * if demand is made and the board rejects the action, shareholder can still proceed. If a shareholder proceeds with the case under one of these circumstances, a court may still stay the case if the corporate commences with an inquiry into the allegations. (3) dismissal The court may dismiss a derivative claim, upon a motion by the corporation, if disinterested directors take the following steps: * Conduct an adequately informed review and evaluation of the allegations made in the demand or complaint * Determine in good faith that continuing the litigation is not in the best interests of the corporation * Submit a short statement of the reasons for its determination The determination should be made by either a majority vote of disinterested directors (if there is a quorum) or by a majority vote of a special committee (consisting of two or more disinterested directors appointed by a majority of the disinterested directors at a board meeting). When the board of directors forms a committee to investigate whether a shareholder derivative action was in the best interest of the corporation, the committee must have at least two director-members for a court to dismiss the action based on the committee's recommendation. (4) consequences

Answer 55

Corporations may acquire insurance to indemnify a director for actions arising from his service as a director. * Such insurance can cover all liability of a director—even if the corporation could not otherwise indemnify the director. (see list of prohibited indemnification, the insurance CAN STILL COVER THIS) *mandatory indemnification* A corporation is required to indemnify a director for expenses incurred in a wholly successful of a proceeding against the director. The director may even seek a court order compelling indemnification in this case. *Prohibited indemnification* A corporation may not indemnify a director against liability stemming: * from willful misconduct a knowing violation of criminal law * when a director deemed to have received an improper personal benefit * a violationof the criminal law, unless director/offier had reasonable cause to believe the conduct was lawful or had no reasonable cause to believe the conduct was unlawful or * a circumstance under which the director is liable for an unlawful distribution *permitted indemnification* The corporation may indemnify an individual who is a party to a specific proceeding because the individual is or was a director if: * The director acted in good faith * The director held a reasonable belief that her conduct was in the best interests of the corporation (for conduct made in her official capacity) or at least not opposed to the best interest of the corporation (in other cases). * In a **criminal proceeding**, the director did not have reasonable cause to believe that his conduct was unlawful * Satisfaction of these requirements must be determined by either a majority vote of disinterested directors or special legal counsel chosen by disinterest directors or the shareholders. the Interested directors can not vote their shares for the indemnification (2) expense advancement A corporation may advance funds to the director to pay for or reimburse the expenses incurred so long as the director delivers to the corporation a signed written undertaking to repay funds that are advanced in the event the director is not entitled to indemnification. This must be an unlimited general obligation of the director but need not be secured—and it may be accepted without looking at the financial ability of the director to make repayment. The advancement must be authorized by a majority of disinterested directors if there are at least two disinterested directors or the shareholders. interested directors cannot vote their shares for the advancement (3) liability insurance A corporation may also purchase liability insurance to indemnify directors for actions arising from service as a director. This can be done regardless of whether the corporation would have power to indemnify the director or advance expenses to the director against the same liability.

Answer 56

A director is entitled to inspect and copy corporate books, records, and other documents for any purpose related to her duties as a director. If the corporation refuses access, the director may seek a court order

Answer 57

*Officers and Employees* Florida does not require a corporation to have specific officers and leaves the designation of officers and their duties to the bylaws or the board of directors. (1) Key officers * A corporation’s key officers usually include the president the secretary and the treasurer. There may be other officers, as so desired. * an individual can hold more than one office * a primary officer does not also need to be on the board of directors * directors select the officers (2) officers as agents Officers are agents of the corporation and may bind the corporation in contract law so long as they have authortiy * Agency law: authority can arise via actual express authority, actual implied authority, or apparent authority As agents, officers do not normally incur personal liability for the performance of duties related to the corporation. * An officer may be personally liable, however, if she acts to guarantee a contract or commit a tort. **VVVVVVVVVVVV** *Duties of Officers* The operating duties of each officer will be defined in the bylaws or set by the board The officers (and all employees) owe the same fiduciary duties of care and loyalty as directors. When carrying out their duties, officers are entitled to rely on: * The performance of properly delegated responsibilities by one or more employees of the corporation whom the officer believes in good faith to be reliable and competent in performing the responsibilities. * Information, opinions, reports, or statements (including financial statements) prepared or presented by one or more employees of the corporation whom the officer believes in good faith to be reliable and competent in the matters presented * Legal counsel, public accountants, or other persons retained by the corporation as to matters involving skills or expertise the officer believes in good faith are matters within the particular person's professional or expert competence Under Sarbanes Oxley (SOX), the CEO and CFO of public companies must certify the accuracy of financial statements with the SEC and forfeit incentive-based pay if the financial reports need to be restated. *indemnification* Same indemnification rules as directors The corporation may provide indemnity to advance or reimburse expenses incurred by, or provide or maintain insurance on behalf of, an agent or an employee who is not a director or officer *resignation* An officer may resign at any time by delivering a written notice to the corporation board of directors, its chairman, the appointing officer, if any, or the corporation's secretary. The resignation may provide for a delayed effectiveness. An officer's resignation does not affect the corporation's contract rights, if any, with the officer. (3) removal An officer may be removed with or without cause by the board, by the appointing officer (unless the bylaws or board say otherwise) or by any other officer authorized by the bylaws or board to remove. An employment contract does not prevent removal but may give rise to contract damages if there has been a breach of the employment contract.

Answer 58

*Officers and Employees* Florida does not require a corporation to have specific officers and leaves the designation of officers and their duties to the bylaws or the board of directors. (1) Key officers * A corporation’s key officers usually include the president the secretary and the treasurer. There may be other officers, as so desired. * an individual can hold more than one office * a primary officer does not also need to be on the board of directors * directors select the officers (2) officers as agents Officers are agents of the corporation and may bind the corporation in contract law so long as they have authortiy * Agency law: authority can arise via actual express authority, actual implied authority, or apparent authority As agents, officers do not normally incur personal liability for the performance of duties related to the corporation. * An officer may be personally liable, however, if she acts to guarantee a contract or commit a tort. **VVVVVVVVVVVV** *Duties of Officers* The operating duties of each officer will be defined in the bylaws or set by the board The officers (and all employees) owe the same fiduciary duties of care and loyalty as directors. When carrying out their duties, officers are entitled to rely on: * The performance of properly delegated responsibilities by one or more employees of the corporation whom the officer believes in good faith to be reliable and competent in performing the responsibilities. * Information, opinions, reports, or statements (including financial statements) prepared or presented by one or more employees of the corporation whom the officer believes in good faith to be reliable and competent in the matters presented * Legal counsel, public accountants, or other persons retained by the corporation as to matters involving skills or expertise the officer believes in good faith are matters within the particular person's professional or expert competence

Answer 59

Firms may be terminated either by voluntary agreement or involuntarily upon court order or state action. *Voluntary Dissolution* If the firm has not yet issued stock: by simply signing a resolution of dissolution that has been approved by a majority of the incorporators or initial directors If the corporation has issued stock: by having the board adopt a proposal to dissolve and obtaining shareholder approval Requires the approval of each voting group entitled to vote by more than a majority of all the votes entitled to be cast by that voting group * This vote must be taken for each separate voting group (e.g., preferred stock) if more than one group exists. * The necessary vote may be increased (by the board or articles). After the corporation dissolves, it continues to exist for a short time for the limited purpose of winding up and liquidating its business. During the winding up, the corporation will: * Collect the corporation’s assets * Dispose of properties that will not be distributed to shareholders * Discharge liabilities * Distribute any remaining assets to shareholders according to their interests * Conduct any other act necessary to wind up and liquidate the corporation’s business If the firm changes its mind, it can revoke the dissolution proceedings by submitting articles of revocation of dissolution with the state. **VVVVVVVVV** *involuntary dissolution* (1) state A legal action to involuntarily dissolve a corporation may be brought by the Florida Department of Legal Affairs if the corporation has: * abused its authority through fraud * Continued to exceed or abuse the conferred upon it by law (2) Shareholder A shareholder may pursue involuntarily dissolution of the corporation if: * The shareholders are deadlocked * The directors are deadlocked and the shareholders are unable to break the deadlock, and irreperable injury to the corporation is threatened * The acts of the directors are oppressive * The corporate assets are being wasted (3) creditor A creditor may seek dissolution when the claim has been reduced to an unsatisfied judgment and the corporation is deadlocked.

Answer 60

A corporation with only a few few shareholders and a relaxed form of governance Shareholders often serve as both directors and officers

Answer 61

A corporation with a purpose that is limited by statute to rendering a single professional service Professional limited liability company: an LLC subject to a similar limited purpose The name must have one of the following special words: * Professional corporation: “chartered,” the words “professional association,” the abbreviation “P.A.,” or the designation “PA” * Professional limited liability company: “professional limited liability company,” the abbreviation “P.L.L.C.,” or the designation “PLLC” A shareholder or member in the professional organization must be a member of the applicable profession. * a professional corporation will not shield an employee from liability arising from her own malpractice * BUT, as with a shareholder of a corporation, a shareholder of a professional corporation is **not liable on the grounds of being a shareholder** for the malpractice of another employee of the corporation. * a professional corporation will shield an employee from liability arising from malpractice by other professionals in the corporation

Answer 62

A corporation (C corp) is usually subjected to double taxation **VVVVVVVVV** To become an S corporation, the corporation must meet the following requirements: * it can have no more than 100 shareholders * the shareholders must be individuals, estates, certain exempt organizations, and certain trusts * the shareholders must be United States citizens or permanent residents * the corporation cannot have more than one class of stock and * each shareholder must elect for the corporation to become an S corporation. An S corporation, by contrast, avoids double taxation by passing through income and expenses to the shareholders. A corporation may opt into S corporation treatment in certain circumstances, but this is a function of tax law, not Florida corporation law.

Answer 63

Designed to promote one or more specific public benefits (e.g., serving low-income individuals, improving the environment, improving human health) Expressly adopted to avoid the risk of shareholder lawsuits for corporate decisions that might not contribute to shareholder profit maximization. * you form fl benefit corp by including statement in AOI identifying corp as benefit corp * an existing regular corp can become a benefit corp note: A benefit corporation should describe its public benefit efforts (including the results) in its annual report and be assessed by an independent and transparent third-party standard. A benefit corporation cannot concentrate on a single benefit program to the detriment of other general public concerns.

Answer 64

A social purpose corporation is a type of corporation with a limited purpose. Its statutory purpose is to create a public benefit, rather than a general public benefit. A social purpose corporation can engage in for-profit activities, so long as its activities are aligned with its social purpose

Answer 65

Generally subject to the same requirements as a regular for-profit corporation. However, there are some key differences. (1) AOI and formation AOI must have 1. name 2. address of principal office 3. purpose for which corporation is organized 4. method of electing directors (DOES NOT NEED TO LIST WHO THE DIRECTORS ARE) or provision mandating bylaws to specify this method 5. any limits on corporate powers 6. address of registered agent and written acceptance of appointment and 7. name and address of each incorporator *name* Must contain the word “corporation” or “incorporated” or the abbreviation “Corp.” or “Inc.” similar that clearly indicate that it is a corporation instead of a natural person, unincorporated association, or partnership. Name of the corporation may not contain the word “company” or its abbreviation “Co.” *purpose* Must include a statement of purpose for which the corporation is organized Nonprofit corporations may be organized for any lawful purpose that is not for pecuniary profit Nonprofit corporations are not prohibited from engaging in commercial activities, but the directors of a nonprofit corporation are duty-bound to devote primary attention to the promotion of the goals of the corporation rather than the production of net income. *membership* Unlike a for-profit corporation, a nonprofit corporation cannot issue capital stock and therefore does not have shareholders It may or may not have members and may have one or more classes of members. * Not personally liable for any act, debt, liability, or obligation of the corporation A member may be liable to the corporation for dues or fees owed to the corporation. (2) operation *Member Meetings* The frequency of meetings of members and the requirements for notice, quorum, and voting are determined by or in accordance with the articles or bylaws. *directors* Subject to limitations set out in the articles, all corporate powers must be exercised by or under the authority of the corporation’s board of directors, and the affairs of the corporation must be managed under the direction of the corporation’s board of directors. * Number of directors: must be specified in or fixed in accordance with the articles or bylaws, but there **must be at least 3 directors** * Election: the articles must state the manner in which directors are to be elected or appointed (or they must provide that the bylaws state the method of electing directors). * Committees: unless the articles or the bylaws provide otherwise, the board of directors may create a committee and appoint its members. *distribution* May not make distributions to its members, directors, or officers It can pay reasonable salary compensation to its members, directors, or officers for services rendered, and it may confer benefits upon its members in conformity with its purposes. (3) dissolution Upon dissolution, the corporation must adopt a plan providing for the distribution of assets. The plan should distribute assets in the following order: 1. Discharge all liabilities and obligations 2. Return assets obtained upon condition of return 3. Convey assets obtained for use only for a specific purpose 4. To members as provided by the articles or bylaws 5. To such trusts, societies, or organizations as are specified in the plan of distribution (4) conversion A for-profit corporation that is engaged solely in purposes for which not-for-profit corporations are authorized can petition for conversion to a not-for- profit corporation.

Answer 66

A legally recognized business entity in Florida that combines passed-through treatment with the limited liability of a corporation Provides significant management flexibility and has grown in popularity *creation* Created by at least one person filing the articles of organization with the State Department Must also file an annual report (like a corporation) *key documents* Articles of organization must include: * the name of the llc * Its registered agent and office * business address Name must contain one of the following magic words: “limited liability company,” or “LLC” * The name may not contain words suggesting a different form (e.g., Corp., Inc., Ltd.) May also adopt an operating agreement that governs any or all aspects of its affairs. This will generally change any statutory default rules. * Analogous to a corporation’s bylaws * Typically, must be agreed to by all members * does not need to be in writing * All members must also agree to any amendment the operating agreement (unless specified otherwise). *members* Two types of LLCs: member managed and manager managed Default: management of an LLC is vested in its members (1) membership admission Must have at least one member. A person may be become a member by agreeing to do so with the authorized representative forming the LLC. A person will then typically become a member of an existing LLC either: * As provided in the operating agreement * As the result of a merger or similar transaction * With the consent of all of the members note: A transferee of a LLC membership interest merely acquires the transferor's right to share in the LLC's profits and losses. (2) non-economic members Because there is no requirement that a member hold an economic interest in the LLC, members may have voting or managerial rights without being entitled to receive distributions from the LLC or being obligated to contribute. *contributions* (1) contribution rules May consist of tangible or intangible property or other benefit, including money, services performed and so on Promise to contribute to an LLC is enforceable only if it is in a writing signed by the promisor (2) Allocation of profits and losses Typically, the operating agreement of the LLC determines how profits and losses will be allocated among the members of the LLC. In the absence of such an agreement, profits and losses are allocated according to each member’s contribution to the LLC. *distributions* A member of an ongoing LLC does not have a right to a distribution from the LLC. Neither does the dissociation of a member from an LLC entitle the former member to a distribution. Generally, an LLC must make a distribution in the form of money. generally, llc subject to same insolvency restrictions on a distributions as a corporation *voting rights* (1) member-managed llc Each member has the right to vote with respect to the management and conduct of the company’s activities and affairs. * Each member’s vote is proportionate to that member’s then-current percentage or other interest in the profits of the LLC. * Generally, the affirmative vote or consent of majority of the members is required to undertake an act—whether within or outside the ordinary course of the company’s activities and affairs. The consent of all members is required to admit a new member, expelling an existing member, amend the articles or the operating agreement, or dissolve the LLC. (2) Manager-managed LLC Each manager has equal rights in the management and conduct of the company’s activities and affairs. * A matter relating to the activities and affairs of the company must generally be decided by the manager. * If there is more than one manager, the matter must generally be decided by the affirmative vote (in a meeting) or consent (in a record) of a majority of the managers. * For the LLC to undertake an act outside the ordinary course of the company’s activities and affairs, the affirmative vote or consent of a majority-in-interest of the members is generally required, with each member’s vote determined in the same manner as a member-managed LLC. * The unanimous consent of all members is required in the same circumstances as those of a member-managed LLC *LLC liability* There are four ways for a person to have the power to bind an LLC: 1. as a statutory agent of the llc 2. By grant of authority to do so in the articles or operating agreement 3. By grant of authority pursuant to a filed statement of authority (SoA) 4. By having status as an agent (1) Statutory agency Member-managed LLC * Each member is an agent of the LLC for the purposes of its activities and affairs. * An act of a member binds the LLC unless the member had no authority to act for the company in the particular matter, and the person with whom the member was dealing without authority or had notice that the member lacked authority. Manager-managed LLC * The manager is an agent of the LLC. * An act of the manager is treated in the same manner as the act of a member in a member managed LLC. * A member of the LLC is not an agent of the LLC solely by virtue of being a member. * A manager's act is binding on the LLC unless the manager had no authority to act for the company in the particular matter and the person with whom the manager was dealing either knew or had notice that the manager lacked authority. (2) statement of authority An LLC may file a statement of authority regarding status (member or manager) or position (or office) of a person in the LLC, and it may also set limits on each person’s authority. *Members' and Managers' Liability* (1) general liability A member or manager of an LLC is generally not liable as a member or manager for an LLC’s obligations. The failure of an LLC to observe formalities relating to the exercise of its powers or management of its activities and affairs is not a ground for imposing liability on a member or manager. NOTE: Do NOT state that piercing an LLC's corporate veil is possible in Florida. (2) Fiduciary duties In Florida, each member of a member-managed LLC and manager of a manager managed LLC owe the fiduciary duties of loyalty and care to the LLC and its members *duty of care* To refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of the law *Duty of loyalty* Includes accounting to the LLC for profit or benefit derived from the conduct of the LLC’s activities, the use of LLC property, or the appropriation of an LLC opportunity; refraining from dealing with the LLC as a person having an interest adverse to the LLC; and refraining from competing with the LLC. Importantly, the duty of loyalty may be waived in the LLC’s operating agreement. *Good faith and fair dealing* Finally, there is also an obligation of good faith and fair dealing in discharging these duties.

Answer 67

One of the hallmark benefits of incorporation is that incorporation shields shareholders from the corporation's liabilities. * In Florida, shareholders of a corporation are generally not personally liable for corporation obligations. However, they can be liable under the "piercing the corporate veil" doctrine. * in Florida, a plaintiff can "pierce the corporate veil"—i.e., hold a shareholder liable for corporation transactions—if the corporation was organized or used to mislead creditors or to perpetuate fraud. The courts consider a variety of factors and use a totality of the circumstances test to determine if the shareholder can be sued personally. Courts consider the following factors when determining whether to allow a plaintiff to pierce the corporate veil: * undercapitalization of the corporation at the time of its formation * disregard of corporate formalities * use of corporate assets as the shareholder’s own assets * self-dealing with the corporation * siphoning of corporate funds or stripping of corporate assets * use of the corporate form to avoid statutory requirements or other legal * unreasonable capital contributions in the form of loans to gain favorable treatment in a subsequent bankruptcy * impermissible shareholder control or domination over the corporation * wrongful, misleading, or fraudulent dealings with a corporate creditor and * whether failure to allow piercing will sanction a fraud or promote injustice. Not all factors need to be present. However, the failure of the shareholder to respect the corporate form must also adversely affect the third party's ability to recover from the corporation for the doctrine to be available.

Answer 68

In general, a member of an LLC has the same rights to bring a direct action on the member’s behalf against the LLC, another member of the LLC, or a manager of the LLC, or a derivative action on behalf of the LLC, as a shareholder of a corporation and is subject to the same requirements.

Answer 69

In general, a member of an LLC and a manager of a manager-managed LLC have inspection rights similar to those of a shareholder in a corporation. * typically llc has 10 days during which to respond to demand for information regarding LLC a person who has dissociated as a member from the LLC still has inspection rights for documents regarding the period in which they were a member

Answer 70

Each member has the power to dissociate from the LLC at any time. * However, unless the operating agreement provides otherwise, a member’s voluntary withdrawal from the LLC before completion of the winding up of the LLC is a wrongful dissociation. * The dissociated member is liable to the LLC and other members for damages caused by a wrongful dissociation. Upon dissociation, the withdrawing member’s right to participate as a member in the management and conduct of the LLC’s affairs terminates. The member’s dissociation does not discharge the member from any obligation to the LLC or other members incurred while a member.

Answer 71

As is the case for other business entities, an LLC may merge with another LLC or another business entity (e.g., partnership, corporation).

Answer 72

An LLC is dissolved and must wind up its business when an event or circumstance that the operating agreement states causes dissolution occurs or all members consent to dissolution.

Answer 73

A court may dissolve an LLC in a proceeding brought by the Department of Legal Affairs, a manager or member of the LLC, or the LLC itself. This generally follows the rules for involuntary dissolution of a corporation.

Answer 74

Other business entities are permitted to convert to an LLC and vice versa.

florida corporations Flashcards

(98 cards)