Corporate formation

Question 1

who are promoters

Answer 1

persons acting on behalf of corp not yet formed

Question 2

when does a corp become liable on a promoters pre-incorporation k

Answer 2

when the corp ADOPTS the contract by either

1) express board of directors resolution OR
2) implied adoption by knowledge of K AND acceptance of benefits

Question 3

what is the only way a promoter gets off liability of pre-incorporation K’s

Answer 3

UNTIL A NOVATION

Question 4

What is a novation

Answer 4

an agreement b/w the promoter, the corp and the other contracting party that the corp will replace the promoter under the K

Question 5

who is liable if the promoter enters into a K and the corp is never formed?

Answer 5

promoter alone is personally liable on K

Question 6

who is liable if the promoter enters a pre-incorp K and the corp merely adopts the K/

Answer 6

both promoter AND corp are liable of election of 3rd party.

- 3rd party gets to choose whom to sue

Question 7

are promoters fiduciares to each other and the corp?

Answer 7

YES

Question 8

since promoters are fiducaries to each other and the corp what CANNOT they do?

Answer 8

self deal and make secrete profits

Question 9

what if a promoter acquires property b4 becoming a partner and resells property to corp?

Answer 9

the profit recoverable by corp. ONLY IF sold more than FAIR MARKET VALUE

Question 10

what if a promoter acquires property AFTER becoming a promoter and resells the property to the corp??

Answer 10

any profit is recoverable by the corp

- Even if resale price was fair market value

Question 11

who are subscribers

Answer 11

persons or entities who make written offers to buy stock from a not formed corp

Question 12

when can a subscriber revoke a pre-incorp offer?

Answer 12

a pre-incor offer is irrevocable for 6 months!

Question 13

who is an incorporator

Answer 13

merely signs and files the articles of incorp with the state

Question 14

are there formatlities for making a corporation?

Answer 14

YES must file articles of incorporation with the state

Question 15

what must be included in the articles of incorporation to be valid

Answer 15

1) authorized shares
2) purpose
3) agent
4) incorporators
5) name of corporation

Question 16

what is authorized shares in articles of incorp?

Answer 16

MAX allowed number of shares the corp is authorized to issue

Question 17

can the purpose in the articles be general and perpetual in duration (forever)

Answer 17

YES

ex: engage in all lawful activity in perpetuity

Question 18

what is ultra vires activity?

Answer 18

behind powers of the corp in the purpose statement in articles

Question 19

what happens if there is an ultra vires activity

Answer 19

1) state can enjoin the ultra vires activity

2) corp can sue its own directors and officers for any losses caused by ultra vires activity

Question 20

what needs to be included in articles of incorp for agent

Answer 20

name and address of registered office (attorney for corp)

Question 21

what needs to be included in corp name in articles of incorp>

Answer 21

name MUST contain some indication of corporate status (ex: incorp)

Question 22

does a corp HAVE to include their by-laws in the articles of incorp?

Answer 22

NO. the board has the power to adopt and amend the by-laws UNLESS the power EXCLUSIVELY to the shareholders

Question 23

what is the de facto corporation doctrine?

Answer 23

a business that fails to achieve (legal) corporate status nonetheless is treated as a corporation IF

1) the organizers made a good faith, color able attempt to comply with the corporate formalities and have
2) NO KNOWLEDGE of the lack of corporate status

Question 24

what is the legal significance of forming a corp?

Answer 24

1) corporation is a separate person

2) generally SHAREHOLDERS ARE NOT personally liable for the debts of corp

Question 25

generally are shareholders personally liable for the debts of corporation

Answer 25

NO. This is the principal of limited liability, which means that the shareholder is liable only to pay full consideration of her shares

Question 26

what is the X/C when a shareholder can be liable for personal debts of a corproation?

Answer 26

piercing the corproate veil

Question 27

what is piercing the corproate veil?

Answer 27

to avoid fraud or unfairness and hold shareholders personally liable for debts of corp

Question 28

what are the 2 ways to pierce the corporate veil?

Answer 28

1) alter ego: failure to observe sufficient corporate formalities; or 2) undercapitilization: failure to maintain sufficient funds to cover foreseeable liabilities

Question 29

what types of cases are most likely when courts will pierce the corporate veil>?

Answer 29

TORT cases

Question 30

are tort cases or contract cases most likely to be held when piercing the corporate veil

Answer 30

TORT cases

Question 31

what is the classic case where courts will pierce the corporate veil?

Answer 31

business doing inherently dangerous activity and having no INSURANCE

Question 32

what do foreign corp. must do?

Answer 32

if corp is incorp. outside of state that wishes to engage in regular intrastate business must qualify by filing a CERTIFICATE OF AUTHORITY with secutraty of state off that includes 1) APAIN 1) authorized shares 2) purpose 3) Agent 4) incorporator 5) name

Question 33

what is the acryonum for what 5 things need to be included for proper filing of articles of incorporation

Answer 33

APAIN 1) authorized shares 2) purpose 3) Agent 4) incorporator 5) name

Question 34

who is a corporate promoter

Answer 34

a person who procures commitments for capital and instrumentality on behalf of a corporation that will be formed in the future.

Question 35

as a GR are corporate promoters personally liable on all contracts

Answer 35

YES. even after the corporation is formed and even if the corporation also becomes liable on the contract by adopting it

Question 36

is a corporate promoter personally liable on the K, even if the corporation also becomes liable on the K by adopting it

Answer 36

YES

Question 37

what is the only time during contracting where a corporate promoter will NOT be liable on PRE-INCORPOARTION K

Answer 37

if the agreement b/w the parties EXPRESSLY INDICATES that the promoter is not to be bound. - That K is considered to be an offer to the proposed corporation.

Question 38

generally is a corporation liable to K entered into before its creation

Answer 38

no

Question 39

x/c where corp is liable for pre existing k before creation

Answer 39

when it 1) expressly adopts it by board or 2) implied adopts it by knowledge of the K and accepting the benefits

Question 40

when is a corporation formed

Answer 40

when the articles of incorporation are filed in Secretary of states office.

Question 41

are persons who are acting on behalf of a corporation knowing that there was no incorporation liable for liabilities created by so acting

Answer 41

yes. 2 prerequisites to liability 1) action on behalf of the corporation and 2) knowledge that the corporation has not yet been formed