FL Bar Business Entities 1 — Questions and Answers
Question 1: Under Florida corporate law, the business judgment rule protects directors from liability for business decisions made in good faith, with due care, and:
- For personal financial gain
- In the honest belief that the decision was in the best interests of the corporation (Correct answer)
- Without shareholder approval
- Based on incomplete information
Correct answer: In the honest belief that the decision was in the best interests of the corporation
Florida's business judgment rule (§ 607.0830) immunizes directors who act in good faith, in a manner they reasonably believe is in the corporation's best interest, with the care an ordinarily prudent person would exercise.
Question 2: Piercing the corporate veil to hold shareholders personally liable requires proof that the corporate form was used to:
- Limit shareholder liability
- Perpetuate fraud, promote injustice, or where the corporation was a mere instrumentality of the shareholder (Correct answer)
- Distribute dividends
- Elect directors
Correct answer: Perpetuate fraud, promote injustice, or where the corporation was a mere instrumentality of the shareholder
Florida courts pierce the corporate veil when the corporation is used as a mere instrumentality or alter ego of the shareholder to perpetuate fraud or injustice, and when the shareholder dominates and controls the entity.
Question 3: In a general partnership, each partner is liable for partnership debts:
- Only up to their capital contribution
- Jointly and severally with all other partners (Correct answer)
- Only for debts they personally authorized
- Only if they are a managing partner
Correct answer: Jointly and severally with all other partners
In a Florida general partnership (FRUPA), each partner is jointly and severally liable for all partnership obligations — personal assets are at risk.
Question 4: A Florida LLC member's interest in the LLC is generally not subject to a charging order, which means a creditor of the member:
- Can seize the member's interest and vote it
- Can only obtain a charging order entitling them to the debtor-member's distributions, not governance rights (Correct answer)
- Can force liquidation of the LLC
- Has no remedy against the member's interest
Correct answer: Can only obtain a charging order entitling them to the debtor-member's distributions, not governance rights
Florida's charging order (§ 605.0503) is the exclusive remedy for a member's judgment creditor — it entitles the creditor only to the debtor-member's economic distributions, not management or voting rights.
Question 5: Shareholders in a Florida close corporation may have a reasonable expectation of employment or management participation, and a majority shareholder who freezes out a minority shareholder may be liable for:
- Breach of fiduciary duty owed to the minority (Correct answer)
- Breach of the duty of care only
- Violation of the business judgment rule only
- Fraudulent transfer
Correct answer: Breach of fiduciary duty owed to the minority
Florida courts recognize that in a close corporation, majority shareholders owe minority shareholders a heightened fiduciary duty, and a freeze-out (excluding from management, cutting dividends) may constitute a breach.
Question 6: Under the Florida Business Corporation Act, directors may declare dividends from which source?
- Any corporate funds, including stated capital
- Surplus (assets exceeding liabilities plus stated capital) or net profits (Correct answer)
- Shareholder loans only
- Authorized but unissued shares
Correct answer: Surplus (assets exceeding liabilities plus stated capital) or net profits
Florida § 607.06401 permits dividends from surplus (total assets minus total liabilities minus stated capital) or from the net profits of the current or preceding year — not from stated capital.
FL Bar Business Entities 1
Under Florida corporate law, the business judgment rule protects directors from liability for business decisions made in good faith, with due care, and: