FL Corporations - MCQ #9
M TAP, Inc., has fewer than 100 shareholders. The shareholders wish to enter into an agreement pertaining to the exercise of the corporate powers or the management of the affairs of the corporation. Which of the following, if adopted by the shareholders, would be contrary to public policy and, therefore, unenforceable in Florida? Answers: A. An agreement that exculpates directors from all personal liability. B. An agreement that authorizes a particular shareholder to manage the affairs of the corporation. C. An agreement that requires dissolution of the corporation at the request of one of the shareholders. D. An agreement that eliminates the board of directors.
Answer choice A is correct. Although shareholders may enter into an agreement regarding the exercise of the corporate powers or the management of the affairs of the corporation, such an agreement cannot exculpate directors from all personal liability.
E/M The articles of incorporation for a closely held corporation provide for the total number of authorized shares of stock to be divided between two classes of stock—one class of stock with voting rights and a second class of stock, which is not entitled to vote, but has the right to receive any distribution upon the dissolution of the corporation. In addition, the articles provide that a percentage of the voting class of stock may be redeemed, with the redemption price determined by a formula that uses the interest rate for federal Treasury securities at the time of redemption. The articles did not establish a par value for the shares of stock. Do these provisions violate the Florida Business Corporations Act? Answers: A. No. B. Yes, because a corporation must have at least one class of stock that has both voting and distribution rights. C. Yes, because the redemption price of stock cannot be dependent on facts determined by an outside source. D. Yes, because the articles failed to establish a par value for the shares of stock.
Answer choice A is correct. These provision do not violate the Florida Business Corporations Act. Answer choice B is incorrect. The articles of incorporation must authorize one or more classes of shares or series of shares within a class that together have unlimited voting rights, and one or more classes of shares or series of shares within a class that together are entitled to the net assets of the corporation upon dissolution. However, there is no requirement that a single class or series of stock possess both characteristics. Answer choice C is incorrect because the redemption price of stock can be dependent on facts from an outside source that are objectively ascertainable. Answer choice D is incorrect because, while the articles of incorporation may fix a par value for stock, there is no requirement that the articles do so.
H Katie is a shareholder in Degas Inc. (Degas), a corporation formed four months ago to buy and sell fine artwork. The articles of incorporation authorize Degas to issue 20,000 shares of common stock, its only class of stock. Katie owns 2,500 of the 10,000 shares that have been issued by the corporation. The board of directors would like to buy a painting, and has found an investor who is willing to buy an additional 4,000 shares for cash. This will provide Degas with the funds it needs to buy the painting. Katie is concerned that this will dilute her ownership interest in the company, and would like to purchase 1,000 additional shares to ensure that she maintains her 25% interest in Degas. The articles of incorporation recognize shareholder preemptive rights, but do not spell out the substance of those rights. Does Katie have the right to buy 1,000 additional shares to maintain her 25% interest in the corporation? Answers: A. No, because Degas has only one class of stock. B. No, because the authorized shares are being sold within six months of incorporation. C. Yes, because the articles of incorporation expressly grant preemptive rights to Degas' shareholders. D. Yes, because the shares are being offered in exchange for monetary consideration.
Answer choice B is correct. In Florida, shareholders do not have preemptive rights unless the articles of incorporation expressly grant them. While Degas' articles of incorporation do grant its shareholders preemptive rights, the statutory restrictions on such rights apply since the articles do not specify those rights. Consequently, Katie does not have the right to purchase additional shares to maintain her 25% interest in the corporation because the corporation is issuing shares that have been authorized by the articles of incorporation within six months of Degas' incorporation.
H A limited liability company (LLC) that owns and manages an apartment complex is itself managed by three individuals, Adrian, Bianca, and Charley, none of whom are members of the LLC. Bianca determines that the hourly wages for the individuals who provide the landscaping services for the complex should be increased. She signs an authorization to that effect and sends it Adrian, who also signs it. Adrian sends the authorization to Charley who refuses to sign it. Bianca has not sought approval of the members of the LLC for the increase. Has the LLC increased the hourly wages of its landscaping staff? Answers: A. No, because the members of the LLC have not approved of the increase. B. No, because the increase was not authorized at a meeting of the managers of the LLC. C. Yes, because an increase in the hourly wages of the landscaping staff was in the ordinary course of the LLC's business. D. Yes, because Bianca and Adrian, who constitute a majority of the managers of the LLC, signed the authorization.
Answer choice B is correct. In a manager-managed LLC, each manager has equal rights in the management and conduct of the company's activities and affairs. A matter relating to the activities and affairs of the company must generally be decided by the manager. If there is more than one manager, it must be decided by the affirmative vote or consent of a majority of the managers, and if the action is taken without a meeting, the decision requires the managers' unanimous consent in a record. Here, although Adrian and Bianca, as a majority of the managers of the LLC, can cause the LLC to increase the hourly wages paid to the landscaping staff by approving of the contract at a meeting of the managers of the LLC, apart from a meeting of the managers of the LLC, Adrian and Bianca cannot cause the LLC to increase those wages unless unanimous consent of all managers is contained in a record.
m/h Rainbow Corporation has outstanding 1,000 shares of voting common stock and 1,000 shares of nonvoting preferred. The preferred has a liquidation preference equal to its par value of $100 per share plus a three percent noncumulative dividend. Rainbow submits to its stockholders a proposal to authorize a new class of preferred stock with redemption rights that would come ahead of the old preferred stock. At a shareholders' meeting, 700 common and 400 preferred vote in favor of the proposal. Which of the following statements is correct? Answers: A. The proposal is validly approved because overall a majority of the outstanding shares did approve. B. The proposal is invalidly approved because a majority of the preferred shareholders did not approve. C. The vote of the preferred stockholders does not matter because it was nonvoting stock. D. The proposal is invalidly approved because a two-thirds vote of each class is required.
Answer choice B is correct. To authorize a new class of stock, a corporation must amend its articles of incorporation. Generally, shareholders of a corporation must approve of an amendment to the article of incorporations by a majority vote. When there are different classes of stock, and the amendment adversely affects the rights of shareholders of a particular class of stock, that class of stock is entitled to vote on the amendment even if the class or series of stock cannot vote on other matters. Moreover, the class or series of stock must separately approve the amendment by a majority vote of the shares entitled to be cast.
M/h Siblings, Inc., had three directors—Nora, Denise, and Maria. A personal feud unrelated to the operation of the corporation developed, with Nora and Denise taking sides against Maria. At a regular meeting of the board of directors, Nora and Denise voted to remove Maria as a director of the corporation because of the feud. Maria, who was notified of the meeting but was unaware that Nora and Denise intended to remove her as a director, did not attend the meeting. The articles of incorporation are silent as to the removal of a director. Is this action proper? Answers: A. Yes, because a director may be removed without cause. B. Yes, because a majority of the directors took this action at a meeting at which a quorum was present. C. No, because Maria was not given notice that a purpose of the board meeting was to remove her as director. D. No, because a director may not be removed by the other directors.
Answer choice D is correct. Although a director may be removed by the shareholders or by judicial proceedings, a director may not be removed by the other directors of the corporation.
M/h Drs. Older and Younger are surgeons who formed a professional corporation. Each became both a shareholder and an employee of the corporation. Dr. Younger operated on Marie using a technique developed by Dr. Younger. As a result of that technique, Marie suffered serious complications from the surgery that have resulted in permanent injury to her. Which of the following statements most accurately describes each surgeon's personal liability as a shareholder of the professional corporation to Marie? Answers: A. Both Drs. Older and Younger are liable to Marie. B. Only Dr. Younger is liable to Marie. C. Only Dr. Older is liable to Marie. D. Neither Dr. Older nor Dr. Younger is liable to Marie.
Answer choice D is correct. As with a shareholder of a corporation, a shareholder of a professional corporation is not liable on the grounds of being a shareholder for the malpractice of an employee of the corporation. Each doctor, as a professional, would be personally liable to Marie for his own malpractice conduct, but this personal liability does not stem from his status as a shareholder of the professional corporation. Consequently, answer choices A, B, and C are incorrect.
E Acme Corporation ("Acme"), a Florida corporation, has a six-member board of directors. The board, by vote of three-to-one at a meeting with four directors present, approved of a dividend of 10 percent of Acme's net annual profit to be determined by the corporation's treasurer in accordance with generally accepted accounting principles. Based on the board's instructions, the treasurer fixed the amount of the dividend at $5 per share. The board did not fix a date for determining the shareholders entitled to the dividend. Neither Acme's articles of incorporation nor its bylaws vary the default rules of Florida law for corporations. Is this dividend proper? Answers: A. No, because the board itself did not fix the amount of the dividend. B. No, because a majority of the board did not approve of the dividend. C. No, because the board did not fix a date for determining the shareholders entitled to the dividend. D. Yes, the dividend is proper.
Answer choice D is correct. The dividend is proper. Answer choice A is incorrect. Having authorized a distribution and set sufficient parameters, the board may delegate to a board committee or corporate officer the power to fix the amount and other terms of the distribution.
M Mack Mansion, a building contractor, and Art Deco, an interior designer, want to form a professional corporation in Florida to take advantage of the synergy between their businesses. Mack is properly licensed in Florida as a building contractor, and Art is properly licensed as an interior designer. Each would be a shareholder of the corporation, and the corporation would be named Deco Mansion, Chartered. Can they do so? Answers: A. Yes, because each is properly licensed in Florida. B. Yes, because each would be a shareholder of the corporation. C. No, because the corporation's name would not include the term "professional association," the abbreviation "P.A.", or the designation "PA". D. No, because they are not members of the same profession.
Answer choice D is correct. The shareholders of a professional corporation must all be members of the same profession. Since Mack and Art are not members of the same profession, Mack being licensed as a building contractor and Art as an interior designer, they cannot form a professional corporation in Florida.