Business Entities

CORPORATIONS CORPORATIONS Corporate Law is governed by State Law Corporate Law is governed by State Law A business organization constituting an independent entity created by the state pursuant to a corporate charter and enjoying the power conferred upon it by law A business organization constituting an independent entity created by the state pursuant to a corporate charter and enjoying the power conferred upon it by law Exercise the same rights and privileges as a natural person- working exclusively by and through its agents Exercise the same rights and privileges as a natural person- working exclusively by and through its agents Due process rights Due process rights But it can self incriminate-i.e.. through corporate records But it can self incriminate-i.e.. through corporate records Sue and be sued Sue and be sued The same rights a person has The same rights a person has

Business Entities Advantages Advantages Limited Liability Limited Liability Centralized management-where? Centralized management-where? In the board of directors In the board of directors Perpetual existence Perpetual existence Transferability of ownership Transferability of ownership Shares are freely transferable Shares are freely transferable Access to Capital markets Access to Capital markets Access to raise venture capital-sell shares-as regulated by the government Access to raise venture capital-sell shares-as regulated by the government

Business Entities Disadvantages Disadvantages Must pay Federal and State Income taxes Must pay Federal and State Income taxes Florida 5.5% of taxable net income Florida 5.5% of taxable net income Double Taxation Double Taxation Dividends paid are taxable as ordinary income Dividends paid are taxable as ordinary income Vicarious Liability-torts of employees acting w/in… Vicarious Liability-torts of employees acting w/in… Punitive damages Punitive damages If agent or employee engages in intentional misconduct or gross negligence If agent or employee engages in intentional misconduct or gross negligence Actively and knowingly participated in the conduct Actively and knowingly participated in the conduct Officers, directors, ratified, condoned conduct Officers, directors, ratified, condoned conduct Corporation engaged in gross negligence contributed to loss, damages, injury Corporation engaged in gross negligence contributed to loss, damages, injury

Business Entities Ultra Vires Doctrine Ultra Vires Doctrine When the corporation acts beyond the powers expressly conferred on the corporation by law or its charter When the corporation acts beyond the powers expressly conferred on the corporation by law or its charter NOTE: there is a place on the incorporation papers asking what the corporation will actually do which is optional Most will fill in “ ANY LAWFUL PURPOSE ” NOTE: there is a place on the incorporation papers asking what the corporation will actually do which is optional Most will fill in “ ANY LAWFUL PURPOSE ”

Business Entities FORMATION FORMATION One or more natural person, or and entity such as corporation, partnership or association-no age, residency or citizenship are required One or more natural person, or and entity such as corporation, partnership or association-no age, residency or citizenship are required Articles of Incorporation Articles of Incorporation Name including corporation or variation thereof, Inc, Corp, Co. Name including corporation or variation thereof, Inc, Corp, Co. Aggregate number of shares Aggregate number of shares Initial Registered agent in Florida w/ agents written acceptance – WHY? Initial Registered agent in Florida w/ agents written acceptance – WHY? Names and addresses of incorporators Names and addresses of incorporators Address of the initial principal office Address of the initial principal office Bylaws Bylaws Minutes Minutes

Business Entities CORPORATE DIRECTORS CORPORATE DIRECTORS Number as few or as many Number as few or as many Increased or decreased if Charter is amended to reflect same Increased or decreased if Charter is amended to reflect same Term: as provided Term: as provided Vacancies on the Board: Vacancies on the Board: Death, expiration of term, death Death, expiration of term, death NOTE: you may receive something asking you to vote-with profiles of those running, or get a request to vote by proxy-WHAT IS THIS? NOTE: you may receive something asking you to vote-with profiles of those running, or get a request to vote by proxy-WHAT IS THIS?

Business Entities Quorum: a majority of the number of directors is required before conducting corporation business Quorum: a majority of the number of directors is required before conducting corporation business By Laws-rules governing the operation of the corporation, while staying consistent with the Articles of Incorporation By Laws-rules governing the operation of the corporation, while staying consistent with the Articles of Incorporation Financing the Corporation Financing the Corporation Capital structure-long term investment in the corporation Capital structure-long term investment in the corporation Including capital stock and bonds-what are bonds (corporate debt) Including capital stock and bonds-what are bonds (corporate debt) Common Stock: representing residual ownership and claim to assets upon liquidation Common Stock: representing residual ownership and claim to assets upon liquidation

Business Entities Preferred Stock: higher risk as well as potential higher may be voting or non voting, usually bought at a higher rate, and have a priority claim to the corporation ’ s income and fixed liquidation preference, paid prior to dividend on the common stock (senior security) Preferred Stock: higher risk as well as potential higher may be voting or non voting, usually bought at a higher rate, and have a priority claim to the corporation ’ s income and fixed liquidation preference, paid prior to dividend on the common stock (senior security) Dividends-there are no laws/rules regarding having to declare a dividend, thus solely in the discretion of the directors Dividends-there are no laws/rules regarding having to declare a dividend, thus solely in the discretion of the directors Shareholders cannot compel the directors to declare and pay a dividend Shareholders cannot compel the directors to declare and pay a dividend Earned Surplus-surplus equal to the aggregate balance of the Corporation ’ s net profits, income, gains, and losses from the date of incorporation less all dividends paid Earned Surplus-surplus equal to the aggregate balance of the Corporation ’ s net profits, income, gains, and losses from the date of incorporation less all dividends paid

Business Entities Corporate Directors – Removing liability protection Corporate Directors – Removing liability protection Duty of Care Duty of Care Care and skill of an ordinary prudent person in a like position under similar circumstances Care and skill of an ordinary prudent person in a like position under similar circumstances Piercing the Corporate Veil – corporation exists for sole purpose of perpetrating fraud Piercing the Corporate Veil – corporation exists for sole purpose of perpetrating fraud Alter Ego – Where business exists more for mere conduit of own private business Alter Ego – Where business exists more for mere conduit of own private business Business Judgment Rule Business Judgment Rule Business Decisions must be made Business Decisions must be made In good faith, reasonably informed taking into consideration normal business practices In good faith, reasonably informed taking into consideration normal business practices

Business Entities Long term prospect and interest of the corporation and shareholders, employees, suppliers, customers and that some prudent person would agree with the choices even though reasonable people would disagree with the wisdom of the decision made the directors are not guarantors of their business judgments and the court will not hold them liable if the decision turns out to be unwise or unprofitable Long term prospect and interest of the corporation and shareholders, employees, suppliers, customers and that some prudent person would agree with the choices even though reasonable people would disagree with the wisdom of the decision made the directors are not guarantors of their business judgments and the court will not hold them liable if the decision turns out to be unwise or unprofitable The court will not substitute their own business judgment The court will not substitute their own business judgment Unless there is gross negligence or recklessness Unless there is gross negligence or recklessness

Business Entities Sole Proprietorships - single owner of the business and property in their individual name Sole Proprietorships - single owner of the business and property in their individual name Control, convenience, privacy, simplicity Control, convenience, privacy, simplicity PARTNERSHIPS PARTNERSHIPS An association of two or more persons to carry on as co-owners a business for profit-intent to form partnership may be implied An association of two or more persons to carry on as co-owners a business for profit-intent to form partnership may be implied No formal agreement is necessary No formal agreement is necessary Writing is generally not required Writing is generally not required However there is the Statute of Frauds if partners wish to have an enforceable agreement to remain partners for more than 1 year However there is the Statute of Frauds if partners wish to have an enforceable agreement to remain partners for more than 1 year Otherwise they are looked as “ at will ” and may rightfully be terminated by any partner at any time Otherwise they are looked as “ at will ” and may rightfully be terminated by any partner at any time Joint Ventures are partnerships Joint Ventures are partnerships

Business Entities Profit Sharing is Prima facie evidence that one is a partner in a business unless money is for payment of Profit Sharing is Prima facie evidence that one is a partner in a business unless money is for payment of Debt Debt Services/wages/rent Services/wages/rent Interest on a loan Interest on a loan Sale of a business ’ s goodwill by installment or otherwise Sale of a business ’ s goodwill by installment or otherwise Partnership Interest Includes Partnership Interest Includes Right to Manage Right to Manage Right to share in partnership profits and losses and receive distributions Right to share in partnership profits and losses and receive distributions

Business Entities Limited Liability Companies (LC, LLC) Limited Liability Companies (LC, LLC) Taxed like a partnership Taxed like a partnership Not liable for person debts Not liable for person debts Not parties in a suit against the company – with exceptions Not parties in a suit against the company – with exceptions Violate the law Violate the law Improper personal benefit Improper personal benefit Professional Corporations (P.A., L.L.C) Professional Corporations (P.A., L.L.C) Person licensed in a profession Person licensed in a profession Attorneys, architects, certified public account, medical professionals, life insurance agents Attorneys, architects, certified public account, medical professionals, life insurance agents Remains personally liable for their acts for malpractice - misconduct Remains personally liable for their acts for malpractice - misconduct