(3) Corporations: Formation Flashcards
Corporation
Formation
A corporations existence begins on the date the articles of incorporation are filed with the secretary of state unless delayed effective date is specified. An earlier effective date cannot be specified because a corporation cannot exist until the articles of incorporation are properly filed.
Articles of Incorporation
Formation
must contain (1) the corporate name; (2) the number of shares the corporation is authorized to issue; (3) the address of the corporations initial registered office and the name of its initial registered agent at that office; AND (4) the name and address of each incorporator.
Limited Liability Company (LLC)
Formation
A Limited Liability Company is formed when (1) the articles of organization (aka the certificate of formation) is properly filed with the secretary of state; AND (2) the company has at least one member.
What does a LLC operating agreement govern?
Formation
Unless otherwise stated, the operating agreement governs (1) the relations between the members and the LLC; (2) the rights and duties of managers; (3) the activities and affairs of the company; and (4) any means and conditions for amending the operating agreement.
Overview
Pre-Formation Contract Liability
Formation
- Promotor Liability
- De Jure Corporation
- De Facto Corporation
- Corporation by Estoppel
- Liability for Pre-Incorporation Contracts
Promotor Liability
Formation - Pre-Formation Contract Liability
Promotors act on behalf of the corporation before it is created and are personally liable for all contracts entered into on behalf of the corporation before it is created. Unless an exception is met such as De Factor Corporation or Corporation by Estoppel.
De Jure Corporation
Formation - Pre-Formation Contract Liability
A legally formed corporation is called a de jure corporation. A corporation is legally formed when the article of incorporation are filed with the secretary of state (paying a fee is required to file).
De Facto Corporation
Formation - Pre-Formation Contract Liability
A de facto corporation enjoys the same benefits and powers of a properly formed corporation. A de facto corporation exists where the entity: (1) made a good faith attempt to incorporate; (2) is otherwise eligible to incorporate; AND (3) took some action indicating that it considered itself a corporation.
However only a person who was unaware that the corporation was not properly formed may assert the de facto corporation doctrine.
Corporation by Estoppel
Formation - Pre-Formation Contract Liability
Under the doctrine of corporation by estoppel any person or entity that treated a business as a corporation may be estopped from denying that the business is corporation, even if a valid corporation was not formed.
The doctrine of corporation by estoppel applies to both (a) 3rd parties that treated the business as a corporation; and (b) an entity that held itself out as a corporation and benefited from that claim.
*The corporation by estoppel doctrine does not apply to tort actions.
Types:
Liability for Pre-Incorporation Contracts
Formation - Pre-Formation Contract Liability
- Promotor Liability
- Corporate Liability
Promotor Liability
Formation-Pre-Formation K Liability - Liability for Pre-Incorporation Ks
A promoter is a person who acts on behalf of a corporation that has not yet been formed. A promoter remains personally liable on any pre-incorporation contract entered into even if the corporation subsequently adopts the contract. The promoter will not be personally liable if (1) there was a subsequent novation or (2) the contract explicitly provides that the promoter has no personal liability on the contract.
*A promoter may seek reimbursement from the corporation for any liability but he cannot compel the corporation to pay for the same.
Corporation Liability
Formation-Pre-Formation K Liability - Liability for Pre-Incorporation Ks
