Commercial Law in a Nutshell

A corporation is a separate legal entity, used to conduct business. Several types of corporations exist. Generically, any business entity that is recognized as distinct from the people who own it (sole proprietorship, partnership) is a corporation. Only a company that has been formally incorporated according to the laws of a particular state is called ‘corporation’. Florida corporations are generally profit-making companies or non-profit entities. Tax-exempt non-profit corporations are often called “501(c)3 corporations”, after the section of the Internal Revenue Code that addresses their tax exemption. The Florida statutes governing corporations are found at http://www.leg.state.fl.us/statutes/. Chapter 607 deals specifically with the laws formally incorporating a business. Florida limited liability statute Chapter 608 deals specifically with the laws formally incorporating a limited liability company.

The word "corporation" derives from corpus, the Latin word for body, or a "body of people". A corporation or LLC could be defined as a collection of individuals united into one body, formed under legal requirements, with the capacity of acting as an individual.

Despite not being persons, corporations are recognized by the law to have rights and responsibilities like actual people. Corporations can even be convicted of criminal offences. Five common characteristics of the modern corporation are investor ownership, transferable shares, separate legal personality, limited liability and delegated management (board of directors).

The rule of limited liability is the defining feature of corporations and limited liability companies. If a corporation or LLC fails, shareholders or members stand only to lose their investment and will not be personally liable for debts that remain owing to the corporation's creditors. Unlike in a partnership or sole proprietorship, shareholders of a modern business corporation have "limited" liability for the corporation's debts and obligations. Registration with the State is the main prerequisite to a corporation's limited liability.

Another favorable feature of corporations are the assets and structure of the corporation exist beyond the lifetime of any of its shareholders or employees. This allows for stability and accumulation of capital and growth. In theory, a corporation can have its charter revoked at any time, putting an end to its existence as a legal entity. However, in practice, dissolution only occurs for corporations that request it or fail to meet annual filing requirements.

Another favorable feature is that corporate profits and shareholder dividends are taxed at a lower rate than other income or in ‘S corporations’ shareholders are taxed directly on the corporation's profits and dividends are not taxed.

The corporate legal personality has two economic implications. First it grants creditors priority over corporate assets upon liquidation. Second, corporate assets cannot be withdrawn by its shareholders, nor can the assets of the firm be taken by personal creditors of its shareholders.

In Florida corporate governance or control of the corporation is determined by a board of directors which is elected by the shareholders. The CEO, president, treasurer, and other corporate officers are usually chosen by the board of directors to manage the affairs of the corporation. In addition to the influence of shareholders, corporations can be controlled in part by creditors in return for lending money to the corporation. Creditors can demand a controlling interest analogous to that of a stockholder, including one or more seats on the board of directors.

Normally, the formation of a corporation begins with the filing of ‘articles of incorporation’ with the State of Florida. The articles set out the general nature of the corporation, the amount of stock to be issued, and the names and addresses of directors. Once the articles are approved, the corporation's directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions. In Florida, articles of incorporation require the principal address of the corporation and designation of the registered agent to receive legal service of process.

Historically, corporations generally have a distinct name that includes the term "Corporation", or an abbreviation (Inc.) that denotes the corporate status of the entity. Use of the corporate name puts all persons on constructive notice that they are dealing with an entity whose liability remains limited.

Corporate business law differs from state to state, and many prospective corporations choose to incorporate in a state whose laws are most favorable to its business interests. Many large corporations are incorporated in Delaware, for example, without being physically located there because that state has very favorable corporate tax and disclosure laws.

Companies set up for privacy or asset protection often incorporate in Nevada, which does not require disclosure of share ownership. Many states, including Florida, have modeled their corporate statutes after the Model Business Corporation Act, one of many model sets of law prepared and published by the American Bar Association.

This outline gives a summary of corporate law in Florida. There are many factors that would affect the timing and approach to corporate law proceedings. There are alternative ways to resolve your corporate issues, ranging from an inexpensive consultation, to mediation, to litigation. For specific information directed to your situation please contact this office at your convenience.