Chapter 1: Formation of Corporations Flashcards
Generally a corporation is
A separate legal entity that can sue and be sued and is formed to transact business
Advantages: limited liability, centralized management, shareholders can transfer shares w/out terminating the entity and perpetual existence.
What is a promoter?
A person who gets a corp. up and running: solicits capital from investors, engages in tx for business property and hires employees.
A promoter is liable for any preincorporation debts and remains liable unless there is a novation. A corporation is only liable for these debts if they adopt the K (express or implicit).
How do you form a corporation?
Incorporators must sign and file the articles of incorporation w/ the Secretary of State.
Articles of Inc must include:
Name of the corp and abbreviation, # of authorized shares, name and address of registered agent and office, name and address of registered agent and office of incorporators.
Once articles are filed a de jure corp has been formed
Ultra vires act
An act done by corp outside its permitted powers, K can’t be avoided, but acts can be challenged.
Shareholders can sue to enjoin the act
Corporations can sue director/officer/employee who engaged in the act
The attorney general can sue to enjoin the corp from committing the act
Defective incorporation
Articles that are flawed and lack required info
Once Articles accepted and filed by the state, conclusive proof of inc. even w/ mistakes
Even if articles are not accepted adn filed, the owners may still receive de factor corp doctrine if in GF they tried to comply w/ inc. and had no knowledge of the defect, there is a de facto corp and shareholders have limited liability. Can apply to K creditors or tort claimants.
Corporation by estoppel
A counterparty to a tx cannot challenge the corp status is the counterparty believed the he was transacting w/ corp and owner of corp made GF effort to comply and had no knowledge of lack of corp.
Applies generally to K creditors
