Corporations

1
Corporations

• Chapter 34

2
Corporate Attributes

• Separate Legal Entity
• Creature of the State
• Limited Liability to Shareholders
• Free Transferability of Ownership
• Continuity of Existence
• Centralized Management
• An artificial person and citizen
• Ease in Raising Capital

3
Florida Statutory Corporate Powers 607.0202(3)

• To sue and be sued in its corporate name
• Perpetual duration and succession in its
  corporate name
• To have a corporate seal
• To purchase, receive, lease, acquire, hold, use
  and improve real and personal property
• To sell, mortgage, convey, pledge, lease,
  exchange, create a security interest in and
  dispose of all or part of its property
• To lend money to and use its credit to assist its
  officers and employees when such may be
  reasonably expected to benefit the corporation.
• To enter into contracts, borrow money and
  guarantee debts

4
Florida Statutory Corporate Powers, Contd

• To lend, invest and reinvest money for its
  corporate purposes
• To elect directors and appoint officers,
  employees and agents and fix their compensation.
• To adopt and amend by-laws
• To make donations for the public welfare or for
  charitable, scientific or educational purposes.
• To transact any lawful business, and conduct all
  other implied or incidental powers.
• To pay pensions and establish pension and
  profit-sharing plans and other employee incentive
  plans
• To enter into general or limited partnerships or
  joint ventures.
• To indemnify corporate officers, directors,
  agents and employees and purchase liability
  insurance therefor
• To provide life insurance for its benefit on
  directors, officers or employees

5
Disregard of Corporate EntityPiercing the
Corporate Veil

• Courts will disregard the separate corporate
  entity when the corporate form is used to commit
  wrongdoings or shield its shareholders from
  liability for fraud.
• Shareholders may be personally liable for
  corporate acts.
• Alter Ego Doctrine
• Thin Capitalization
• Subsidiary Corporations
• Deep Rock Doctrine

6
Promoters

• Secures potential investors Liable on
  preincorporation contracts UNLESS an adoption by
  the corp. terminates promoters liability, or
  novation.
• EXCEPTION to promoter liability if the Third
  Party
• Knew about the non-existence of the corp.
• Insisted that the contract be signed in the
  corps name
• Contract states the promoter will not be liable
  and that the Third Party will look to the
  prospective corporation for payment.
• Promoters are NOT agents

Promoters have fiduciary duties
7
Subscribers

• Subscribers agree to purchase a certain amount of
  stock at a specified price, payable at an agreed
  future time.
• The Revised Act (and Florida) provide that a
  pre-incorporation subscription agreement is
  irrevocable for 6 months unless the agreement
  provides otherwise, or all subscribers consent
  to revocation.
• Post-incorporation subscription agreements are
  always revocable before acceptance by corp.

Subscriber is an offeror, s(he) enters into a
contract to purchase stock
8
FORMALITIES

• Incorporators
• Articles of Incorporation. Mandatory name
  aggregate number of shares hether shareholders
  are to be given preemptive rights street address
  of the corporations initial registered office,
  and agents name names and addresses of
  incorporators street address of initial
  principal office.
• Permissible purpose duration clause name,
  address and number of initial directors par
  value of shares.
• Corporate existence begins upon filing.

9
Organizational Meeting

• Board of Directors hold an Organizational Meeting
• Adopt bylaws that govern internal management
• Appoint officers
• Approval of a corporate seal
• Approval of pre-incorporation agreements
• Take other steps to complete the organizational
  structure, i.e., adopt stock subscription
  agreements

10
Defective Incorporation

• de Facto - Fails to comply substantially with
  the incorporation statute but will be recognized
  as a corp if there was a good faith attempt to
  incorporate and an actual exercise or use of
  corporate powers.
• Only the State can challenge its existence in a
  Quo Warranto proceeding

• de Jure - A corporation which has been formed
  in substantial compliance with the states
  incorporation statute.
• Its existence cant be challenged.

11
Corporation by Estoppel

• An organization that is neither de jure or de
  facto may nevertheless be estopped from denying
  its a corporation if
• the organization has represented itself as a
  corporation.
• The representation is followed by reasonable
  reliance and material alteration of position by a
  third party
• Injustice can be avoided only by treating the
  business as a corporation.

12
Ultra Vires Doctrine

• Actions or contracts by a corporation which go
  beyond the powers expressly conferred on the
  corporation by law,or by its articles of
  incorporation.
• Common Law - Ultra vires acts are void and
  unenforceable.
• Today, Both Florida and the Model Act provide
  that no act of a corporation, and no conveyance
  of property, is invalid by reason of the fact
  that the corporation was without capacity or
  power to act (with a few exceptions). Neither
  corps, shareholders or third parties dealing with
  it can avoid responsibility for their acts based
  on the grounds of ultra vires.

13
Liability for Torts and Crimes

• Torts - Under the doctrine of respondeat
  superior, a corporation is liable for the torts
  of its employees within the course of their
  employment.
• Crimes - Corporations may be liable for violating
  strict liability statutes, or an offense
  perpetrated by a high corporate officer or by its
  board of directors.