Intracorporate Groups Flashcards
(39 cards)
Who is a promoter?
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.
Who is an incorporator?
One who signs the articles of incorporation.
Does the promoter have a fiduciary duty to the corporation?
Yes. They are bound to act in utmost fairness with the corporation and in the best interest of all the investors, to exercise good faith
Is a promoter who profits from the sale of property to the corporation potentially liable?
Yes, unless:
- There is full disclosure of all material facts to an independent board of directors that approves or ratifies the transaction;
- There is full disclosure of all material facts to each shareholder before he subscribes to his shares or the shareholders unanimously ratify the transaction after subscribing; or
- The promoter is the sole shareholder at the time of the sale to the corporation and there is no plan to sell stock thereafter to the investors.
What is the Florida Law regarding promoter liability?
The Florida courts follow the so-called federal rule, which holds that the promoter has not violated his fiduciary duty to the corporation since the promoter, being the sole shareholder at the time, was not harmed and the corporation, being the same entity, is thereafter estopped to complain.
- Under this rule, the defrauded investors may have a personal action against the promoter under the state or federal securities laws or the common law action of deceit
Is the corporation bound on preincorporation contracts entered into by the promoters on behalf of the corporation or in its name?
No, the corporate entity does not exist.
Are promoters bound on preincorporation contracts?
Yes; all persons purporting to act as or on behalf of a corporation knowing that there was no incorporation are jointly and severally liable for all liabilities created while so acting.
How may a corporation become liable on promoters’ contrafcts?
By adopting them.
Must adoption be express?
No, adoption may be express or implied, but the mere act of incorporation is not sufficient to constitute adoption.
- Acceptance of the benefits of the contract is usually deemed to constitute adoption.
- Even AFTER adoption, the promoter still remains liable unless there is a novation
What is a novation?
A novation is a specific agreement by all parties that, upon adoption of the contract by the corporation after it comes into being, the promoter will be released from personal liability on the contract, and the contracting party will look exclusively to the corporation for performance under the contract.
What should the promoter do if he wishes to bind the other party before the corporation was formed, but avoid any personal liability?
He may obtain an option from the other party, irrevocable for a specified period and assignable to the corporation after it is formed.
What rights does the promoter have?
He has no right of action against the corporation for expenses incurred by him prior to incorporation NOR for salary for the time devoted to organizing the corporation
What happens where the proposed corporation is never organized?
The promoters must return all money to the subscribers and may not deduct any amount for expenses, regardless of the fact that the promoters have acted in good faith without any misrepresentations or fraud and honestly endeavored to complete the incorporation
What are the management rights of shareholders?
They have virtually no power to control directly the day-to-day management of corporate affiars. This norm can be varied in the articles by vesting the power of management in the shareholders.
What are the indirect methods of control that shareholders can use to gain some control?
- election of directors;
- approval of amendments to articles;
- approval of certain fundamental changes such as merger, sale of assets, or dissolution;
- amendment of bylaws when provided by the articles
Where can shareholders’ meetings be held?
They may be held within or outside the state, as may be provided in the bylaws.
When is the annual meeting of the shareholders held?
At a time stated in or in accordance with the bylaws. BUT, if the annual meeting is not held within any 15-month period, any shareholder may apply to the court for an order requiring the meeting to be held.
Can attendance at the annual shareholder meeting be via remote communication?
Yes, if authorized by the board of directors.
For what purpose may special meetings be called?
For any appropriate purpose. Can be called by the holders of at least one-tenth of all the outstanding voting shares, or such other persons as may be authorized in the articles or bylaws
When is written notice of a special meeting and its purpose required to be given?
At least 10 days in advance to each shareholder of record entitled to vote at the meeting.
What is the record date?
The day on which eligibility to vote or receive notice is determined.
Who sets the record date?
The record date is fixed by the board of directors, and may NOT be more than 70 days prior to the meeting.
What happens after the record date?
The stock transfer books are closed until the meeting, and the list of eligible voters is determined.
Who are the record holders?
The holders of voting shares on the record date, as shown on the stock transfer books of the corporation. They are eligible to vote at shareholder meetings and are entitled to notice of meetings.
