Corporate Formation Flashcards
Promoter Liability
A promoter is a person acting on behalf of a corporation not yet formed. Promoters have a fiduciary duty to the corporation and co-promoters. Promoters are solely liable for pre-incorporation Ks, but liability is shared if the formed corporation expressly or impliedly adopts the agreement. The promoter has no liability after there has been a novation. Here,
De Jure Corporation
Corporations are a separate legal entity capable of suing/being sued, holding property, being a partner, and paying taxes. A de jure corporation is validly formed when articles of incorporation are filed with the secretary of state that include (A-PAIN)
1)Authorized shares 2)Purpose of business 3) Agent of service 4) Incorporator name(s) 5) Name of corporation. A corporation generally shields owners from personal liability. Here,
Purpose of Business
It is presumed the business has a general purpose to engage in any lawful activity in perpetuity. However, if a specific purpose is stated and the business acts outside its purpose, then Officers and directors could be liable for “ultra vires” acts. Here,
Defacto Corp & Estoppel
If the articles of incorporation were unintentionally never filed with the secretary of state, the shareholders may still have some protection from personal liability if they can show the existence of a De Facto Corporation or a Corporation by Estoppel. However, these doctrines are abolished in some states. Here,
De Facto Corporation
De Facto corporation status will be granted if there was a good faith attempt to comply with the incorporation statute and there was an exercise of corporate privileges, i.e. acting like we already formed corporation. Here,
Corporation by Estoppel
Under the Corporation by Estoppel doctrine, a party entering a contract with the business, as if it were a valid corporation, will be estopped from later denying its corporate status. Here,
Pierce the Corporate Veil
Even if a close corporation is validly formed, individual shareholders may still be liable for corporate damages if they intentionally abuse the privileges of incorporation and fairness requires it. Courts are more willing to PCV for tort victims because unlike K claimant, a tort claimant did not willingly choose to transact with the corporation. Here,
Close Corporation
A close corporation has a small number of shareholders and no public market for stock. Members have a fiduciary duty to not oppress each other (similar to partnership). Here,
Alter Ego
The corporate veil may be pierced, an individual shareholder may be liable, if he abuses the protections of incorporation by co-mingling personal and corporate assets. Horizontal PCV occurs when shareholder abuses the use of a sibling corporation. Here,
Under Capitalization at Formation
The corporate veil may be pierced, and individual shareholders may be liable, if he fails to invest enough capital (or insurance) to cover reasonably foreseeable liabilities. Here,
Fraud
The corporate veil may be pierced when necessary to prevent fraud or to prevent an individual from using the entity to avoid existing personal obligations. Here,
