Term
| Promoter of a corporation |
|
Definition
| collects whatever is necessary for the business to get up and running and files documents with the state |
|
|
Term
| Pre-incorporation transactions |
|
Definition
-promoters can be liable for pre-incorporation transactions as long as the person they are entering into K with has no actual knowledge that corporation does not exist
-corporations by default are not liable for pre-incorporation transaction
-but, if the corporation ratifies the transaction the promoter entered into, corporation liable
-but, if there is a novation (parties replace old K with new K), corporation can be liable |
|
|
Term
|
Definition
| to form a corporation, incorporators must file articles of incorporation with Department of State |
|
|
Term
| Incorporation - required information |
|
Definition
corporate name
-must contain one of three specific words: corporation, company, or incorporated (can be abbreviated)
-name cannot imply affiliation with government agency, corporation is organized for illegal purpose, or that corporation is natural person
-name must be distinguishable from other entities' names
addresses
-stress address and mailing address of corporation's principal office
-street address of registered offices and company's registered agent
-names and addresses of each incorporator/promoter
number of authorized shares |
|
|
Term
| Incorporation - additional information |
|
Definition
may include
-any legal provisions concerning how the business is to be operator or managed
-list of directors
-par value of shares
-limit duration of corporation |
|
|
Term
| Incorporation - defective incorporatoin |
|
Definition
-if Department of State accepts and files articles, it is conclusive proof that the corporation has been successfully established, even if there is some defect
-but if the state wants to revoke the corporate charter, its filing of the articles is not conclusive proof
-court may still find a de facto corporation if there was a good faith effort to file the articles
-if entity acts or holds itself out as a corporation, it cannot deny it is a corporation |
|
|
Term
|
Definition
default rule: FL corporation's purpose is to engage in any and all lawful business; no restrictions
-articles of incorporation can narrow default corporate purpose
if a corporation takes an act outside of its purpose, act is ultra vires
three types of Ps may sue in response to an ultra vires act
-shareholder: may object that the corporation took an action that, under the corporate charter, corporation was never intended to take
-corporation: can sue to get an injunction against one of its managers
-state: may sue in advance to stop corporation from taking an illegal action
remedies
-in state action, court may dissolve corporation or grant injunction
-shareholder suit: court may enjoin action and award damages for actual losses |
|
|
Term
| Formation of corporations miscellaneous |
|
Definition
-corporate bylaws provide further information regarding how corporation is going to be managed
-hierarchy of authority: statutes over articles of incorporation over bylaws
-bylaws must be consistent with articles of incorporation; if bylaws contradict, articles govern
-if articles contradict statutes, statute governs
-FL corporations pay an income tax of 5.5% to FL after an exemption of 50k of income
-also pay federal taxes
-FL corporations must file annual report with Department of State; if they fail to do so, they may be dissolved |
|
|
Term
|
Definition
-a corporation must have shares of stocks
-shares of stocks may be divided into different classes
-two rights that at least one class of shares needs to have: final voting power and ability to receive net assets when corporation dissolves and winds up (two rights do not need to be held by same class of shares and not every class of share needs to have these rights)
-typically there is a single class of shares; by default, every share has equal voting power and an equal right to receive the assets upon dissolution; if a corporation has a total of 100 shares, someone who owns 20 shares would have 20% of votes of corporation and be entitled to receive 20% of company's assets upon dissolution
-by default, directors choose to issue shares
-articles of incorporation can authorize others to issue shares |
|
|
Term
| Stock - issuance by corporation |
|
Definition
-a corporation does not need to issue all of the shares that its articles of incorporation authorizes
-by default, the board determines whether consideration for issued shares is adequate |
|
|
Term
| Stock - stock subscription |
|
Definition
pre-incorporation subscription for shares is by default irrevocable for 6 months; exceptions:
-parties can agree to a different period of time
-subscribers can unanimously agree to release each other
-pre-incorporation subscription must be in writing to be enforced
-if a subscriber defaults, corporation has a right to: try to collect what the subscriber promised to contribute or sell shares to someone else and recover the difference
in FL, stocks need not be represented by stock certificates as long as there is a record kept to provide to shareholders
by default, in FL, shareholders do not have preemptive rights (rights of first refusal) to acquire corporation's unissued shares |
|
|
Term
|
Definition
-distribution is transfer by corporation to shareholders of money or property
-most common form of distribution is dividend
-directors can authorize distributions, subject to restrictions in statute and articles of incorporation
corporation may not make distribution if
-company would not be able to pay debts that arise in usual course of business, or
-it would immediately cause the company to have less money than its current debts
-some classes of shares may have priority in receiving distributions; these shares are called preferred shares, compared with common shares
priority of claims upon liquidation of corporation
-creditors
-preferred shareholders
-common shareholders
record date: if the board of directors does not decide on a dividend record date, the date will be the date the directors issue the dividends |
|
|
Term
| Stocks - restrictions on shareholders' sale of shares |
|
Definition
general rule: easy to agree to restrictions on sale of shares
any of the following can include restrictions on sale of securities by shareholders
-articles of incorporation
-bylaws
-agreement among shareholders
-agreement between shareholders and the corporation
which of the following requirements are valid restrictions on share transfers
-requirement to offer the share to particular third parties before selling them to others
-requirement to offer shares to corporation before selling them to others
-any obligation that corporation acquire shares whose sale is proposed
-requirement that corporation approve sale
-requirement that third party approve sale
-an outright prohibition of sales and transfers, but the restriction cannot be unreasonable |
|
|
Term
| Stocks - securities fraud and insider trading |
|
Definition
-rule 10b-5 is an SEC rule that governs fraudulent purchase or sale of securities
-insiders to a corporation (directors or managers) may be liable for trading using material nonpublic information
-the rule applies to constructive insiders like lawyers for corporation, people who misappropriate secrets of corporation if they have a duty to corporation, or people who have received a tip containing inside information about the stock
-traders in possession of material inside information about a corporation are presumed to have used it while trading unless they are selling their shares according a prewritten plan of sale
-even in absence of inside information, corporate insiders may not legally retain short swing profits |
|
|
Term
|
Definition
-FL statutes require FL corporations to hold annual shareholder meeting
-in addition to annual meetings, BOD or shareholder who owns 10% of voting shares may call special meetings
-shareholders generally must receive 10 and 60 days notice before meeting
-shareholders may waive notice of meeting by showing up or in writing
-instead of a meeting, shareholders may take action by unanimous written consent |
|
|
Term
|
Definition
-by default, all shares of a corporation are entitled to equal votes
-a corporation cannot vote its own shares, but may generally vote shares that it holds in another corporation
-by default, a 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 quorum requirement, but not to less than 1/3 of shares entitled to vote
-articles of incorporation may require that majorities in multiple classes of shares approve before action is take on a matter
-voting for directs by default is straight voting; if there is a majority shareholder, or one who has more votes than any other single shareholder, that shareholder can win every seat on the board, if using straight voting, the default
-however, articles of incorporation can specify that voting is cumulative; shareholders can pool or focus their votes on some of the vacant seats, thereby winning those seats; effect is that a minority shareholder can elect some of the board, rather than none of the board
-FL statutes neither adopt cumulative voting by default nor mandate cumulative voting; but they do allow corporations to adopt cumulative voting in articles
staggering terms of office
-by default, board seats are not staggered
-staggering terms means that some board seats come up for election in the first year, some in the second year, etc.; effect is to slow down a change in corporate control
shareholder agreements to pool votes may be specifically enforced in FL |
|
|
Term
|
Definition
shareholders in corporations with 100 or fewer shareholders may unanimously enter into agreements that radically change the default corporate structure; they can
-eliminate board of directors
-limit powers of board of directors
-permit one shareholder, or any group of them, to exercise corporate powers |
|
|
Term
| Shareholder inspection rights |
|
Definition
-shareholders may inspect corporate records if their purpose is to do anything that relates to their shareholder interests
-the corporation may charge the shareholder reasonable fees |
|
|
Term
|
Definition
there are two types of shareholder actions: direct and derivative
-direct: suit by shareholder in their own right; ex: shareholder is improperly denied right to vote at annual meeting
-derivative: company has suffered a harm, but for some reason does not want to sue; shareholder can step into shoes of corporation; if there is a recovery, it goes to the corporation
-before a derivative action is filed, shareholder must make a demand on corporation unless demand would be futile or delay would lead to irreparable harm
-P shareholder in derivative action may seek reimbursement from corporation for litigation expenses when corporation recovers any relief
-corporation that is D in a derivative action can seek reimbursement from P for litigation expenses if P had no reasonable cause |
|
|
Term
| Shareholder - limited liability |
|
Definition
-in general, shareholders are not liable for debts of a corporation, but articles of incorporation can waive this
-an exception to this principal is known as disregarding the corporate forum/piercing the corporate veil; if X doesn't follow the formalities, but when the corporation starts to lose money, X falls back on limited liability, court might decide to pierce the corporate veil |
|
|
Term
| Shareholder duties to each other |
|
Definition
| shareholders generally do not have duties to other shareholders, but controlling block of shareholders might have dutiies |
|
|
Term
| Structure of board of directors |
|
Definition
-director must be a natural person at least 18, but doesn't need to be a FL resident
-corporation cannot be director of another corporation
-do not need to be a shareholder of the corporation to serve as a director
-a board must have at least one director, by default
-you can remove the board of directors |
|
|
Term
| Operation of the board of directors |
|
Definition
-directors' terms may be staggered, but if not, typically each director has a term that expires at the next annual meeting
-director need not stop serving as a director immediately upon expiration of his term, but continues to serve until his successor is elected and qualifies or until there is a decrease in the number of directors
-by default, director may be removed for any reason; bylaws may require that a director be removed only for cause
-by default directors determine how much directors get paid
-meetings of directors need not be held in person as long as they can talk to each other
-50% of directors constitutes quorum of directors' meetings |
|
|
Term
|
Definition
-unless articles or bylaws provide otherwise, board may establish committees to do work of board and act for it
-by default, majority of board appoints people to committees and specifies what their powers will be
-committees must have at least 2 members
-committee members must be directors
-by default, board may recover committee members at will
board may delegate its powers and duties to a committee except it may not delegate power to
-approve or recommend actions to shareholders
-fill vacancies on board of directors
-adopt, amend, or repeal bylaws
-authorize or approve reacquisition of shares unless pursuant to general formula or method specified by BOD
-authorize or approve issuance or sale or K for sale of shares, except with specific limitations approved by board |
|
|
Term
| Duties of directors and officers |
|
Definition
have duty to perform role in good faith
have duty to act with ordinary care (reasonably)
-director is legally entitled to rely on information received from officers and employees, skilled professionals, and committees as long as director believes the information to be reasonably reliable
-business-judgment rule changes standard by which duty of care is reviewed; under this rule, director is liable for a breach of care only if they had a conscious disregard for the interests of the corporation or otherwise engage in willful misconduct
-directorial conflict of interest (self-dealing) is not protected by the business judgment rule
ordinarily, directors violate duty of loyalty by transacting with corporation themselves
-directors may engage in certain COI transactions if they follow correct procedures; there are 3 safe harbors under which directors may avoid violating duty of loyalty: 1) they make full disclosure of interest and a majority of disinterested directors approve, 2) they make full disclosure of interest and shareholders approve, 3) the transaction was fare and reasonable to corporation
officers owe very similar duties as directors; moreover, they are agents and employees of the company and have normal duties of agents and employees |
|
|
Term
| Indemnification of directors and officers |
|
Definition
-corporations must indemnify directors for reasonable costs incurred in successfully defending a claim
-corporations may indemnify directors for all breaches of duty as long as they acted in good faith
-corporations may not indemnify directors for breaches of the duty of loyalty
-same answers above apply for officers
-indemnity may take form of advances of litigation fees or liability insurance or direct payments |
|
|
Term
|
Definition
merger is combination of two or more corporations
long-form merger; three requirements:
-directors of both companies must approve merger
-majority of voting power of shareholders of both companies approve merger, and
-merger documents filed with state
short-form merger
-merger between parent and subsidiary does not require approval of either corporation's shareholders when parent company owns at least 80% of voting power of each class of outstanding stock in subsidiary
liabilities of a corporation survive merger |
|
|
Term
|
Definition
| in a sale of substantially all of the corporation's assets, outside the regular course of business, directors must propose and shareholders must approve the sale |
|
|
Term
|
Definition
-shareholder who is entitled to vote on a merger or acquisition (and nonvoting shareholders under some circumstances) may generally seek appraisal rights)
-allows shareholder to have their shares independently valued and get paid for them
-normally, objecting shareholder must vote no on merger in order to trigger right; must provide written notice to corporation and must be delivered to corporation before the vote on merger, but they do not need to have the right to vote on the merger |
|
|
Term
|
Definition
process
-first step in a corporation's end of life is called a dissolution
-after a corporation is dissolved, there is a period of time called a winding up where the corporation winds up all the affairs of its business: sells assets, makes distributions, collects on debts, pays creditors
-after winding up is complete, there is an event called termination; corporation ceases to exist
order of distributions
-creditors
-preferred shareholders
-common shareholders |
|
|
Term
|
Definition
Voluntary
-directors propose and shareholders approve dissolution
involuntary
-brought by FL department of legal affairs: 1) corporation achieved its charter through fraud, or 2) corporation is engaged in a continuing pattern of abusing its authority
-brought by a shareholder in any corporation: 1) directors are deadlocked and it causes injury, or 2) shareholders are deadlocked
-brought by a shareholder if there are 35 or fewer: 1) assets are being wasted, leading to injury, or 2) directors or those in control are acting illegally or fraudulently
-brought by a creditor: 1) creditor has a judgment against corporation and corporation will be insolvent, or 2) corporation has admitted that it owes creditor money and corporation will be insolvent |
|
|
Term
|
Definition
-closely held corporation
-corporation with relatively few shareholders |
|
|
Term
|
Definition
-incorporated in another state
-domestic when incorporated in FL
-foreign corporation must register with state of FL before doing business in FL; if it fails to do so it cannot sue in FL courts |
|
|
Term
|
Definition
| corporation that provides professional (medical, etc.) services |
|
|
Term
|
Definition
for tax purposes, corporation is by default a C corporation, which means that it is taxed as a corporate entity; C corporation pays taxes on income and dividends (a type of double taxation)
under some circumstances, a corporation may elect to avoid double taxation and choose to be taxed like a partnership; it then becomes an S corporation
-corporation does not pay its own taxes; shareholders in proportion to their holdings receive income and declare it on their own tax returns, so no double taxation
-to qualify: 1) can have no more than 100 shareholders, 2) may include only individuals and certain trusts and estates, and 3) may not have more than 1 class of stock |
|
|
Term
|
Definition
-purpose of creating general public benefit; articles may specify particular benefit
-benefit companies must prepare an annual benefit report, which describes how company has pursued public benefits
directors must consider following factors
-values of shareholders
-value to employees
-customers
-community and societal factors
-local and global environment
-short term and long term interests of benefit corporation
-ability of benefit corporation to accomplish its general public benefit purpose and each of its specific public benefits purposes laid out in its charter
corporation, directors individually, and those who own at least 5% of the shares may sue to enforce corporation's pursuit of public benefits |
|
|
Term
| Social purpose corporatoin |
|
Definition
-similar to benefits corporation
-social purpose corporations have fewer requirements for directors; instead of list, directors must consider: 1) shareholders, 2) ability to accomplish its public benefit or any specific public benefit purpose |
|
|
Term
|
Definition
-like a corporation, and unlike a general partnership, forming LLC requires filing document with state
-an LLC's operation, and agreements among owners and managers is, generally more flexible than those of corporations
-member or a manager of an LLC typically not liable for debts of LLC
-when it is formed, LLC must have at least 1 member
-LLCs name must contain words limited liability company, L.L.C., or LLC
-like corporation, its name must be distinguishable from other entities and cannot impersonate government
by default, FL LLC is managed by its members
-operating agreement or articles of incorporation may specify, however, that LLC is to be managed by managers
-whoever has control has fiduciary duties
-in a member-managed LLC, members have fiduciary duties of cary and loyalty
-in manager-managed LLC, managers have fiduciary duties of care and loyalty
members may leave an LLC at any time; by default, dissociating from an LLC does not automatically trigger a buy-out right
members in LLC share profits and losses in proportion to their contribution to LLC; do not need unanimous consent of existing members to be added and cannot participate in management of LLC by purchasing membership from previous member |
|
|
