Foreign Corporations May Be Subject to Florida Corporate Law
By Ira N. Rosner, Greenberg
Traurig, Miami Office
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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 Floridaís 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 courtís opinion, however,
other obligations imposed by the FBCA could be construed to apply as well,
such as dissentersí 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.
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 corporationís behalf
in Florida (unless the business is purely interstate in character) would
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 courtís 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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