Corporations
Chapter 34
Corporate Attributes
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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
Florida Statutory Corporate
Powers; 607.0202(3)
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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
Florida Statutory
Corporate Powers, Cont’d
• 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
Disregard of Corporate Entity
“Piercing 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.
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“Alter Ego” Doctrine
Thin Capitalization
Subsidiary Corporations
“Deep Rock” Doctrine
Promoters
Promoters
have
fiduciary
duties
• Secures potential investors
Liable on preincorporation
contracts UNLESS an
adoption by the corp.
terminates promoter’s
liability, or novation.
• EXCEPTION to promoter
liability if the Third Party:
– Knew about the nonexistence of the corp.
– Insisted that the contract be
signed in the corp’s 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
• Subscribers agree to
purchase a certain amount
of stock at a specified
price, payable at an agreed
Subscriber is an offeror, s(he) enters
future time.
into a contract to purchase stock
• 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.
Subscribers
• Post-incorporation
subscription agreements
are always revocable
before acceptance by corp.
FORMALITIES
• Incorporators
• Articles of Incorporation. Mandatory :
name; aggregate number of shares; hether
shareholders are to be given preemptive
rights; street address of the corporation’s
initial registered office, and agent’s 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.
Organizational Meeting
• Board of Directors hold an
Organizational Meeting
• Adopt bylaws that govern
internal management
• Appoint officers
• Approval of a corporate
seal
• Approval of preincorporation agreements
• Take other steps to
complete the
organizational structure,
i.e., adopt stock
subscription agreements
Defective
Incorporation
• de Jure - A
corporation which has
been formed in
substantial compliance
with the state’s
incorporation statute.
• Its existence can’t be
challenged.
• 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
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.
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.
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.