GT Alert

Foreign Corporations May Be Subject to Florida Corporate Law

May 2003
By Ira N. Rosner, Greenberg Traurig, Miami Office

  View or download the PDF version of this Alert here.

A recent decision of a Florida appeals court expands the application of the Florida Business Corporation Act (FBCA) to foreign corporations that are qualified to do business in Florida. In Esperanza de Saad v. Banco Industrial de Venezuela, C.A., Miami Agency (Saad v. BIV), the 3rd District Court of Appeals held that a foreign corporation is subject to mandatory indemnification obligations contained in the FBCA if the foreign corporation is qualified to do business in Florida.

"...a foreign corporation is subject to mandatory indemnification obligations contained in the FBCA if the foreign corporation is qualified to do business in Florida."

Under Section 607.0850(3) of the FBCA, if directors, officers, employees or agents of a Florida corporation are sued in their corporate capacities, the corporation must indemnify them against their defense costs if they are successful on the merits or otherwise. In Saad v. BIV, a former employee of the Venezuelan bank sought to recover the expenses of her allegedly successful defense against money laundering and conspiracy charges. Although BIV is a Venezuelan corporation, the plaintiff asserted that Section 607.1505(2) of the FBCA made the mandatory indemnification provisions of the FBCA applicable to her. Section 607.1505(2) states that a foreign corporation operating in Florida under a valid certificate of authority is subject to the same duties, restrictions, penalties and liabilities as a Florida corporation.

Although the trial court rejected this claim, the appeals court reversed, holding that mandatory indemnification under 607.0850 is a liability imposed on Florida corporations and thus applies to qualified foreign corporations by virtue of Section 607.1505(2) as the plaintiff argued. In reaching its holding, the court relied upon its 1990 decision, under a prior version of Florida corporate law, that the a Georgia corporation qualified or which should have been qualified to do business in Florida1 and its officers are subject to Florida’s laws regarding liability for denying access to corporate books and records.

These cases, while believed by many practitioners to be wrongly decided2, point out that foreign corporations should consider taking steps to reduce their exposure to the FBCA such as seeking waivers from employees of rights arising under 607.0850 or shareholder waivers of inspection rights potentially through charter amendments.3 Given the broadly applicable reasoning of the court’s opinion, however, other obligations imposed by the FBCA could be construed to apply as well, such as dissenters’ rights. Although corporations organized in jurisdictions other than Florida may very well be subject to similar indemnification and inspection requirements of their home state laws, these decisions could subject them to inconsistent and additional obligations if they are qualified or are required to be qualified in Florida and so should consider waivers or other mitigating steps.

Footnotes

1 What activity constitutes "transacting business" requiring qualification is not well defined and is heavily dependent on facts and circumstances. Generally speaking, maintaining an office or employees with the power to enter into binding contracts on the corporation’s behalf in Florida (unless the business is purely interstate in character) would require qualification.

2 For example, Section 607.1505(3) states that a foreign corporation may not be regulated by Florida as to its organization or internal affairs. The court’s opinion in Saad v. BIV did not deal with this limitation. Arguably, indemnification of directors and officers is a matter of internal affairs given that the obligation to indemnify arises solely out of the status of directors and officers as such.

3 Although courts often fail to enforce advance waivers, the marginal cost of obtaining them should be small relative to the potential value if they are enforced.

© 2003 Greenberg Traurig

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