Business Associations - Corporation Formation Flashcards
Corporation Formations
What are the two major business organizations aside from partnerships?
Corporations and limited-liability companies (LLCs)
LLCs will be covered in another lesson.
Who owns a corporation?
Its shareholders
Shareholders generally do not manage the corporation unless they are also officers or directors.
What is a corporation in legal terms?
A legal person that can be liable for its own obligations
Shareholders have no personal liability for the corporation’s actions, debts, or obligations.
What is the consequence of ‘piercing the corporate veil’?
Imposing personal liability on shareholders
This occurs in exceptional situations.
What must be filed to form a corporation?
Articles of incorporation
This must be done with the appropriate state authority, usually the secretary of state.
What information is must be included in articles of incorporation?
- Corporation’s name
- Number of shares
- Incorporators’ names and addresses
- Address of corporate office
- Agent for service of process
Additional information may include the corporation’s purpose and initial directors and officers.
When does a corporation exist as a legal entity?
Once the articles of incorporation are filed. (What matters is the date on which the articles are filed, which cannot relate back to any earlier date.)
The effective date cannot be earlier than the filing date.
What must a corporation adopt after incorporation?
Bylaws
Bylaws are the internal rules for operation and must be consistent with state law and articles of incorporation.
What is the role of a promoter?
A person who participates in forming a corporation
Promoters owe duties of care and loyalty to the prospective corporation.
What happens if a promoter acts on behalf of a corporation before it is incorporated?
They are jointly and severally liable for all liabilities created
An erroneous but good-faith belief in incorporation does not constitute knowledge.
What is the de facto corporation doctrine?
Recognition of limited corporate liability if there was a good-faith attempt to incorporate
Actual use of the corporate form is also considered.
What does the incorporation-by-estoppel doctrine do?
Recognizes limited corporate liability if a third party dealt solely with the purported corporation
This applies if the third party did not rely on the promoter’s personal assets.
Can a corporation adopt preincorporation contracts?
Yes
A corporation may adopt a contract expressly or impliedly through conduct.
What relieves a promoter of personal contractual liability?
Novation
This occurs when the corporation adopts a preincorporation contract.
Fill in the blank: Instead of filing articles of incorporation, LLC organizers must file a _______.
Certificate of organization
This document provides basic information about the LLC.
