Presented by David G. Budd and Charles C. Whittington, Shareholders, Grant Fridkin Pearson, P.A.
This is Part II of our series. This paper is presented for the Florida corporation clients of GFP in Florida and other parts of the US and in Europe.
The Florida Business Corporation Act, Chapter 607, Florida Statutes (FBCA) was amended by the Florida Legislature in 2019 (Ch. 2019-90 Laws of Florida) and became effective January 1, 2020. The FBCA is based on the Model Business Corporation Act of the American Bar Association, as last revised in 2016 (MBCA). As a result of this legislation, the FBCA was entirely updated and modernized.
In Part I, we reviewed the basics of the formation of a Florida business corporation. In Part II, we will review matters that may arise in the operation or business of the corporation.
MERGERS AND ALTERNATIVES FOR BUSINESS PLANNING
While it is beyond the scope of this blog, it is important to note that business planning will involve other advisors beyond the corporation lawyer, notably your tax advisor.
- SALE AND PURCHASE OF ASSETS
Perhaps, the simplest of all acquisition transactions is the purchase by a Florida corporation of all, or substantially all, of the assets of another Florida corporation or entity for cash. However, the sale of appreciated assets may be disadvantageous to the seller’s shareholders under the federal tax laws.
The assets may be taken by the purchaser free of undisclosed liabilities. There is no required filing with the Florida Department of State. The selling entities’ shareholders or owners usually, but are not typically required to, liquidate their entity following the sale.
A Florida domestic corporation (formed in Florida), may merge with another domestic or foreign corporation (formed in another state) with one corporation surviving.
The two corporations first enter into a Plan of Merger to agree on the terms and conditions of the merger, including, for example, the exchange of the common shares of the merging corporation for the common shares of the surviving corporation and the makeup of the Board of Directors and officers in the surviving corporation.
By way of example, a Florida corporation (the merging entity) is merged into another Florida corporation (the surviving entity). Articles of Merger must be filed with the Florida Department of State, pursuant to the requirements of the Florida Department of State. As a result, the surviving entity acquires all the assets including ownership of any real property and all the liabilities of the merging entity which ceases to exist, by operation of law with no further action required.
FBCA allows an “eligible entity” to be converted into a Florida corporation. By way of example, a Florida general partnership is an eligible entity.
One begins with a Plan of Conversion which includes the terms for the owners of the eligible entity to obtain shares in the resulting corporation.
In our example, the general partnership, called the Converting Entity and the corporation, called the Converted Entity then file Articles of Conversion, with attached Articles of Incorporation with the Florida Department of State. All the property, rights and liabilities of the Converting Entity remain the property, rights and liability of the Converted Entity. The partnership does not cease to exist, rather it continues to exist as the corporation.
Pursuant to the FBCA, a foreign corporation may become a Florida corporation by the process of domestication.
The foreign corporation called the “domesticating corporation”, must approve the domestication pursuant to the organic law of the place of its formation. The domesticating corporation becomes the “domesticated corporation” in Florida as it continues in existence, without interruption, after the completion of the domestication.
To accomplish a domestication, Articles of Domestication must be filed with the Florida Department of State, with attached Florida Articles of Incorporation. The Articles of Incorporation for the domesticated corporation, similar to the articles for a new corporation require: (i) its name; (ii) office address; (iii) purpose; (iv) shares; (v) name and address and acceptance of its registered agent in Florida; and (vi) names and addresses of its directors and officers.
All property, rights and liabilities of the domesticating corporation, become the property, rights and liabilities of the domesticated corporation. All shares of the domesticating corporation are reclassified into shares of the domesticated corporation. The same corporation continues in existence without interruption.
A Florida corporation may indemnify its directors, officers, employees, and agents against liability incurred in a proceeding (e.g. lawsuit or administrative proceeding) involving the corporation or the Indemnified party. The person to be indemnified must have acted in good faith and in a manner he reasonably believed to be in the best interest of the corporation.
Under the FBCA, the indemnification may be, (1) permissible; (2) mandatory if the person was wholly successful in the defense of the corporation in the proceeding; or (3) court ordered, for example, as the result of the application to the court by the person to be indemnified.
The corporation may also advance expenses, purchase insurance (known as D&O insurance), and enter into contracts to provide the indemnification.
AUTHORITY OF A FOREIGN CORPORATION FOR PROFIT TO TRANSACT BUSINESS IN FLORIDA
A foreign corporation may simply obtain authority to transact business in Florida by filing an application with the Florida Department of State, with an attached authenticated certificate of existence, signed by the proper authority from its jurisdiction of incorporation.
The application requirements include: (i) the name of the corporation and if its name is not available for use in Florida, an alternate name for use in Florida; (ii) the address of the foreign corporation; (iii) the name and address and acceptance of its registered agent in Florida; and (iv) the names and addresses of its directors and officers.
If you have any questions regarding the above, please contact David G. Budd or Charles C. Whittington at 239-514-1000.