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Terms in this set (79)
Pre-Incorporation Transactions - Promoter
A promoter of a corporation is someone who collects whatever is necessary for the business to get up and running and files the documents with the state.
Can be liable for pre-incorporation transactions as long as the person they are entering into a contract with has no actual knowledge that the corporation does not exist.
Incorporators must file ARTICLES OF INCORPORATION with the department of state.
Articles of Incorporation - Information needed
1. Corporate name
2. Several addresses may need to be included
3. Number of authorized Shares
Articles of Incorporation - Corporate
Must contain one of three specific words:
Can be abbreviated
Articles of Incorporation - Several addresses
Street address (and mailing address, if different) of the corporation's principal office
Street address of registered offices, and
the company's registered agent
Also, it must list names and addresses of each incorporator/promoter.
If the Department of State accepts and files the articles, it is conclusive proof that the corporation has been successfully established, even if there is some defect.
Corporate Purpose - Default Rule
A Florida's corporation's "purpose" is to engage in any and all lawful business.
The articles of incorporation can narrow the default corporate "purpose".
Corporate Purpose - Ultra Vires
If a corporation takes an act outside its purpose, the act is "Ultra Vires".
Corporate Purpose - Ultra Vires - 3 Types of Plaintiffs
2. Corporation can sue itself
Corporate Purpose - Ultra Vires - Remedies - State Action
A court may dissolve the corporation or injoin the action
Corporate Purpose - Ultra Vires - Remedies - Shareholder lawsuit
court may injoin the action and award damages
Damages for actual losses only
Hierarchy of Authority
If bylaws contradict the articles, the article govern.
If the articles contradict the statute, the statute governs.
Stock - Classes Right
2 rights that at least one class of share needs to have:
1. Final voting power
2. Ability to receive the net assets when a corporation dissolves and winds up.
Stock- Class of Shares Default
Most commonly, there is a single class of shares. By Default, every share has a equal voting power and equal right to receive the net assets.
If a corporation has a total of 100 shares, someone who owns 20 shares would have 20% of the votes of the corporation and would be entitled to receive 20% of the company's assets upon dissolution.
The articles of incorporation can authorize shareholders to issue shares
A corporation DOES NOT need to issue all the articles of incorporation authorize.
Stock Subscription (pre-incorporation commitment to fund)
By default, is irrevocable for 6 months.
When parties can agree to different term.
Subscribers can unanimously release each other.
Must be in writing
Stock Subscription Defaults
If a subscriber defaults, the corporation has the right to:
* Try to collect what the subscriber promised to contribute; OR
* Sell the shares to someone else and recover the difference
most common form is called a Dividend
They are authorized by Directors, subject to restrictions in the statute and the articles of incorporation.
Corporation may NOT make distribution if:
The company cant pay the debts that arise in the usual course of business
It would immediately cause the company to have less assets than its current liabilities
Class of Shares Priorities in receiving distributions
Priority of claims upon liquidation of the corporation:
2. Preferred Shares
3. Common Shares
Restrictions on Shareholders' Sale of Shares
Any of the following can include restrictions on the sale of securities by shareholders:
1) Articles of incorporation;
3) Agreement among shareholders;
4) Agreement between shareholders and the corporation
Shareholder Meetings - Annual
Florida requires Florida corporations to hold an ANNUAL shareholder meeting.
Shareholder Meeting - Special Meetings
In addition to annual meetings,,,
BOARD OF DIRECTORS or SHAREHOLDERS who own 10% of the voting shares may call special meetings.
Shareholder Meeting- NOtice
10-60 days' notice before a meeting
May waive notice by showing up or by sending a written confirmation that they had notice
Shareholder meeting - No Meeting
Instead of a meeting, shareholders may take action by unanimous written consent.
Shareholder Voting - Default
By default, all shares of a corporation are entitled to equal vote.
A corporation cannot vote its own shares, but may generally vote shares that it holds in another corporation.
Shareholder Voting - Quorum
Quorum of 50% is necessary before a vote may be taken at a meeting.
Articles of Incorporation may INCREASE the quorum requirement to any level.
Articles of Incorporation may DECREASE the quorum requirement but NOT TO LESS THAN 1/3 of the share entitled to vote.
Shareholder Voting - Majority
The articles of incorporation may require that majorities in multiple classes of shares approve
before action is taken on a matter.
Shareholder Voting - Director Voting Default
Voting for directors by default is straight voting.
***If there is a majority shareholder, or one who has more votes than any other single voting
shareholder, that shareholder can win every seat on the Board, if using straight voting, the
Shareholder Voting - Director Voting Cumulative
Articles of Incorporation can specify that voting is CUMULATIVE
***Shareholders can pool or focus their votes on some of the Board seats, thereby winning
those seats. The effect is that a minority shareholder can elect some of the board, rather than none of the board.***
Shareholder Voting - Director Voting - Staggering v Normal terms
By Default, board seats are not staggered. Every election term, each board member could lose their seat.
Shareholder Voting - Director Voting - Staggering term
Staggering the terms means that some board seats come up for election in the first year, some in the second year, etc. The effect is to slow down a change in corporate control.
Shareholder Voting - Director Voting - Normal terms
directors come up for renewal at every annual meeting.
Shareholder Voting - Director Voting - Pool Vote
May be specifically enforced
Shareholders in corporations with 100 or fewer shareholders may unanimously enter into agreements that radically change the corporate structure.
Shareholder Agreements - Valid Changes
o Eliminate the board of directors
o Limit the powers of the board of directors
o Permit one shareholder, or any group of them, to exercise corporate powers
Shareholders may inspect corporate records if their purpose is to do anything that related to their shareholder interest.
Must pay reasonable fees
Shareholder Suits - 2 types
Shareholder Suits - Direct Suit
Suit by shareholders in their own right
Example 24: A shareholder is improperly denied the right to vote at an annual meeting.
Example 25: A shareholder did not receive a dividend that all other
Shareholder Suits -Derivative Suit
The company has suffered a harm, but for some reason does not want to sue. A shareholder can step into the shoes of the corporation. If there is recovery, it goes to the corporation.
Example 26: A shareholder wants the corporation to recover money that a manager stole from the corporation.
Shareholder Suits -Derivative Suit - Process
Before a derivative action is filed, a shareholder must make a "demand" on the corporation unless demand would be futile or delay would lead to irreparable harm.
Shareholder Suits -Derivative Suit - Remedies
A plaintiff shareholder in a derivative action may seek reimbursement from the corporation for litigation expenses as long as the corporation receives relief.
A corporation that is the defendant in a derivative action can seek reimbursement from the
plaintiff for litigation expenses if the plaintiff had no reasonable cause.
in general, Shareholders are not liable for the debts of a corporation
Exception - disregarding corporate forum(Piercing the corporate veil)
Shareholders generally do not have duties to other shareholders
Natural person of at least 18 years of age. Need not be a Florida Resident
A board must have at least 1 director, by default.
Director - Time Served
A director need not stop serving as a director immediately upon expiration of his or her term.
Will stop serving until his successor is appointed.
Directors - Pay
Directors determine how much directors are paid.
Meetings of directors need not be held in person, as long as they simultaneously talk to each other.
By Default, 50% of the directors constitute a quorum for directors' meetings.
Unless the articles or bylaws provide otherwise, the Board may establish committees to act for it.
By default, majority appoints people to committees and specifies what their powers will be.
Committees must have at least 2 member(s).
Committee members must be directors
By default, the board may remove committee members at will.
Board may delegate its power and duties to a committee, EXCEPT to:
a. Approve or Recommend actions to shareholders
b. Fill vacancies on the board of directors
c. Adopt, amend, or repeal the bylaws.
d. Authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the board of directors.
e. Authorize or approve the issuance or sale or contract for the sale of shares, except with
specific limitations approved by the board.
Directors - Conflict of Interest
Directors may engage in certain conflict-of-interest (self-dealing) transactions if they
follow the correct procedures, however.
Directors - Three Safe Harbors
Three safe harbors under which directors may avoid violating the duty of loyalty:
o They make a full disclosure of their interest and a majority of the disinterested directors approve.
o They make a full disclosure of their interest and the shareholders approve.
o The transaction was fair and reasonable to the corporatoin..
Long Form Merger
Merger is combination of two or more corporation
1. Directors of both companies must approve the merger;
2. A majority of the voting power of the shareholders of both companies must approve the merger; and
3. Merger Documents must be filed with the state
A merger between a parent and a subsidiary may not require the approval of either corporation's shareholders when the parent owns at least 80% of the voting power of each class of outstanding stock in the subsidiary.
In a sale of substantially all of the corporation's assets, outside the regular course of business,
the directors must propose and the shareholders must approve the sale.
Process of Termination of Corporation
2. Winding UP
Corporations end of life first step
After a corporation is dissolved, corporation winds up all the affairs of its business.
Collects on debts
after wind up, corporation ceases to exists.
Process of Termination of Corporation - Order of Distributions
Creditors take prior over
Preferred shareholders and
Preferred shareholders take priority over
Directors propose and the shareholders approve dissolution.
Like a corporation, and unlike a general partnership, forming an LLC requires filing a
document with the state
LLC - Articles of Organization
1. LLC's name (must say "Limited Liability Company" or "LLC" or "L.L.C."
2. address of the main office
3. Name and address of registered agent
Must update yearly with annual report
LLC - Members
must have at least 1 memeber
Florida LLC is managed by its members
The operation agreement or the articles of organization may specify that the LLC is to be managed by managers.
LLC - Operating agreements
Contract that binds the people associated with the LLC
Can be oral, implied, in a record, or any combination.
LLC - Operating agreements - Authority
• Operating agreement can grant authority
• In a member-managed LLC, each member is an agent of the LLC.
• In a manager-managed LLC, members are NOT agents; managers are agents.
• LLC may also file a Statement of Authority to give notice of agency rights
LLC - Dissociation
• By default, members may leave an LLC at any time, even if wrongful.
• Operating agreement can prevent dissociation
• By default, dissociating from an LLC does not automatically trigger a buyout
Not-for-Profit Corporation Formation
File Articles of Incorporation: Must contain
Purpose: May be any lawful purpose "not for pecuniary profit"
Method of electing directors
Address of registered agent
Name and address of each incorporator
Not-for-Profit Corporation - Structure
Must be at least 3 directors
Does not have shareholders instead it has members
Not-for-Profit Corporation - Members Right
Elect board of directors
inspect and copy corporate records
Not-for-Profit Corporation - Commercial
May carry on commercial activities
May not make financial distributions to members, directors, or officer (can pay reasonable compensation)
Not-for-Profit Corporation - Dissolution
o On dissolution, must adopt a plan providing for the distribution of assets
Theoretically, this can include distributions to members.
o If it qualifies under statute, a regular, for-profit corporation can convert to a not-for-profit
A corporation is by default a C corporation, which means that it is taxed as a corporate entity.
Under some circumstances, a corporation may elect to avoid this "double taxation" and
choose to be taxed like a partnership; if it does this, it becomes an S corporation.
Taxes- Corporations "S"
S" corporations have "pass through" tax status
The corporation does not pay its own taxes
Shareholders, in proportion to their holdings, receive the income and declare it on
their own tax returns.
Taxes- Corporations "S" - Requirements
• Can have no more than 100 shareholders
• The shareholders may include only individuals and certain trusts and estates (not other corporations or partnerships); and
• The corporation may not have more than 1 class of stock.
Taxes - LLC
Under federal law, can choose taxation as a corporation
Or can choose to be taxed more like a partnership
* Single-member LLC: entity is ignored for tax purposes
* Multiple members: taxed just like a partnership as a "pass through" entity
LLCs get the benefits of an S corporation without the same restrictions
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