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71 Cards in this Set
- Front
- Back
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When can a corporation be held liable for punitive damages?
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If an employee or agent engages in intentional misconduct or is grossly negligent and the corporation participates in or condones the conduct or is itself grossly negligent.
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What are ultra vires acts?
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Acts beyond the power of the corporation conferred by law or by its charter.
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How can the ultra vires defense be used?
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1. Shareholder derivative suit may be brought against corporation to enjoin performance of a specific ultra vires executory contract
2. The corporation may bring suit against officers/directors to recover damages for past ultra vires acts that damaged the corporation |
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What must the articles of incorporation state?
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1. Corporation's name
2. Number of shares and distinguishing characteristics of each class/series 3. Whether shareholders have preemptive rights (default is no) 4. Address of initial registered office 5. Name of initial registered agent and agent's written acceptance 6. Names/addresses of incorporators 7. Address of principal office and mailing address |
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What may the articles of incorporation state?
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1. Number/names/addresses of directors
2. Par value of stock or statement that no par value 3. Imposition of personal liability on shareholders 4. Initial purposes 5. Any other provision |
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When does corporate existence begin?
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Upon filing
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What is a de jure corporation?
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Corporation formed upon substantial compliance with all mandatory requirements for incorporation
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How can you challenge the status of a de jure corporation?
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You can't.
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What is a de facto corporation?
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Corporation formed upon good faith effort to incorporate, colorable compliance with the law, and use of corporate status, despite a substantial defect in formation.
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How can you challenge the status of a de facto corporation?
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Show the defendant had actual knowledge of the lack of incorporation.
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What is corporation by estoppel?
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Defectively formed corporation that persons have dealt with as if it were a legal corporation.
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When is corporation by estoppel not applicable?
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Tort actions where there has been no course of dealing
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When can a court disregard the corporate entity?
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1. Alter ego
2. Thin capitalization 3. Deep rock ("loans" by shareholders of close corporations subordinated to debts owed to outsiders in bankruptcy) |
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When will a parent corporation be liable for the debts of its subsidiary?
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When subsidiary is:
1. Inadequately capitalized 2. Intermingled with parent 3. Otherwise not a true distinct entity |
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How long are preincorporation subscription agreements irrevocable in Florida?
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6 months unless otherwise provided/agreed
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Can shares be paid for by promissory note?
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Yes.
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Do shareholders have preemptive rights to acquire unissued shares or treasury shares?
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No.
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When a company's repurchase of its own shares is by installment, how do you determine the effect of the distribution?
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The earlier of:
1. The date money or other property is transferred or debt incurred by the corporation 2. The date the shareholder ceases to be a shareholder with respect to the acquired shares |
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What is a certificated investment security?
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A security represented by an instrument issued in bearer or registered form
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What is an uncertificated investment security?
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A security not represented by an instrument, but registered on books maintained by the issuer.
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Is a contract or modification of a contract for the purchase or sale of an investment security within the Statute of Frauds?
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No.
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What is the main defense an issuer has against a purchaser for value?
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Certificate is not genuine
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What does the seller of a security warrant to a purchaser for value?
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1. The transfer is effective and rightful
2. The security is genuine and unaltered 3. Seller knows of no fact impairing validity |
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From whom can't the true owner of a wrongfully transferred security reclaim the security?
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A protected purchaser, unless the transfer was due to an unauthorized endorsement (unless the protected purchaser has in good faith received a new certificate or had the transfer registered in her name)
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The true owner of a lost/destroyed/wrongfully taken certificated security is entitled to a replacement if...
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1. Demands it before issuer has notice that a protected purchaser holds original
2. Files indemnity bond 3. Satisfies issuer's other reasonable requirements |
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When do insiders have to disclose inside information to persons from whom they buy shares?
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Special facts doctrine: facts of an unusual nature
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When do officers/directors/10% shareholders have to return to their corporation profits from purchase/sale/repurchase of shares?
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Within a 6 month period.
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What is rule 10b5?
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Prohibition against fraud/deceit/omissions of any material fact in connection with purchase/sale of any security, subject to minimal nexus with interstate commerce and showing of scienter
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What does Florida's control share acquisition statute do?
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Protects corporations from outside takeovers by disenfranchising the control shares acquired by a tender offer until remaining shareholders approve restoration of voting rights
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What is the Williams Act?
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Imposes antifraud and disclosure requirements on all tender offers involving more than 5% of target's stock.
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What is a promoter?
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Person who undertakes to form corporation and procure necessary capital/other items
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What must promoters do?
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Act in good faith in the best interest of all investors
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Are promoters personally liable on preincorporation contracts?
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Yes, unless contract clearly negates personal liability or there's a novation after the corporation adopts it
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What powers to shareholders have?
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1. Electing directors
2. Amending articles/bylaws 3. Approving fundamental corporate changes |
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Shareholder meeting requirements:
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1. Must have annual meeting
2. Can call special meetings with 10 days notice |
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What are the tests to determine the legality of a distribution?
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1. Equity test (corporation can pay debts after distro)
2. Balance Sheet/Bankruptcy Test (distros limited to amount by which total assets exceed sum of total liabilities and liqprefs of preferred shares) |
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Who is liable for improper dividends?
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Directors are liable to the corporation if willful/negligent; shareholders are liable to the corporation's creditors regardless of knowledge
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Can shareholders compel directors to declare dividends?
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No.
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Can a dividend be revoked?
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Yes, if payment illegal.
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What does a shareholder have an absolute right to inspect?
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Articles, bylaws, minutes of shareholder meetings, resolutions of the board creating one or more series or classes of shares, lists of the names and business addresses of the current directors and officers, and most recent annual report.
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How much notice must a shareholder give for bylaw/etc. inspection?
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5 days
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What are the steps in a shareholder derivative suit?
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1. Shareholder makes demand on directors that they prosecute
2. Shareholder waits 90 days, unless a. Notified sooner that demand rejected; or b. Delay will cause irreparable injury 3. Brings suit |
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What is necessary for a shareholder to be eligible to bring a derivative suit?
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1. Owned stock in corporation at time alleged wrong took place; or
2. Shares devolved to shareholder by operation of law |
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When will some courts dismiss a shareholder derivative suit?
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If corporation, through disinterested directors or an independent special litigation committee, determines as a matter of business judgment that the suit is not in the corporation's interest.
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What is the minimum age to be a director?
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18
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How are directors elected?
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Plurality vote
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How can directors be removed?
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With or without cause by the shareholders unless otherwise provided?
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Do you have to have directors?
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Not if you have 100 or fewer shareholders
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Can directors meet via phone?
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Yes.
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Do you have to have notice of regular director meetings?
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No.
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Do you have to have notice of special director meetings?
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Yes, at least two days in advance.
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What is usually needed for a quorum of directors?
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Majority of the authorized number of directors; vacant directorships are counted as absent.
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How small can a quorum of directors be if provided in the articles?
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No fewer than 1/3 the authorized number of directors.
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What is needed for directors to approve an action?
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Majority of directors present unless bylaws/articles say otherwise.
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Can directors approve an action in writing?
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Yes.
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Does a director have power to bind the corporation on extraordinary contracts if they have no authority?
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No.
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Does a director have power to bind the corporation on extraordinary contracts if they have apparent authority?
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No.
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Does a director have power to bind the corporation on extraordinary contracts if they have actual authority?
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Yes.
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How can actual authority arise in a director?
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1. Proper notice given for directors' meeting
2. Quorum present 3. Majority of directors approved the action |
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What are directors' powers?
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1. Powers necessary to manage business of corporation
2. Elect/remove officers 3. Declare dividends 4. Initiate fundamental changes for submission to shareholders for approval |
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What are directors' rights?
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1. Inspect corporate records
2. Reasonably rely on information provided by management/experts 3. Reimbursed for expenses 4. Be indemnified in defending their good-faith actions |
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What are directors' duties?
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Fiduciary duties of care and loyalty
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What is the director's duty of care?
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Must generally exercise the care and skill of an ordinarily prudent person in like circumstances.
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Is the director's duty of care objective or subjective?
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Objective
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What is the business judgment rule?
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Court will not second-guess rational, informed, good-faith decisions over which reasonable persons could have differed
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Are directors personally liable to the corporation for breaches of duty of care?
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Not in Florida.
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When does the duty of loyalty come into play?
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1. Interested director transaction
2. Corporate opportunity doctrine 3. Statutory liability for distributions |
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Is a contract in which a director is financially interested voidable by the corporation?
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No, if the director has made full disclosure of their interest and the contract is approved either by a disinterested majority of the board or by the shareholders or if the contract is fair and reasonable at time of approval.
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What is the corporate opportunity doctrine?
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Directors/officers must inform corporation of business opportunities of which it might wish to take advantage. If director fails to do so and personally takes advantage, may be compelled to transfer the benefits to the corporation.
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What is the liability of a director who votes for or assents to any improper distribution?
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Liable to corporation for the amount of the distribution in excess of the amount legally available.
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How can a director defend against statutory liability for distributions?
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If director reasonably relied, in good faith, on financial statements prepared by management or the corporation's public accountants or a fair valuation of the corporation's assets.
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