Corporate Formation and Requirements

Question 1

People - Formation Requirements

Answer 1

Need at least one adult human to execute the certificate, deliver to the Dep’t of State, and hold the organizational meeting.

Question 2

What must the Certificate of Incorporation include?

Answer 2

The corporate name and address, the corporate purpose, and the capital structure. May include a duration (perpetual otherwise)

Question 3

Define Ultra Vires

Answer 3

Beyond the scope of the purpose in the Certificate. Ultra vires contracts are valid, but shareholders may seek an injunction. Managers responsible for ultra vires acts are liable to the corp for ultra vires losses.

Question 4

What are the three types of stock?

Answer 4

Authorized - maximum number a corporation may sell.
Issued - amount actually sold
Outstanding - amount sold but not reacquired by corporation

Question 5

What information about stocks must be included in the Certificate of Incorporation?

Answer 5

The number of authorized stock.
The number of shares per class.
Info on par value, rights, preferences, and limitations of each class.

Question 6

What acts are required for form a corporation?

Answer 6

Each incorporator signs and acknowledges the certificate.
Deliver certificate to Dep’t of State (Dep’t filing is conclusive proof of valid formation)
Hold the organizational meeting

Question 7

Who is liable for the actions of the corporation?

Answer 7

The corporation is liable for what it does. Shareholders have liability limited to the value of their shares. Directors and Officers are not liable.

Question 8

May a corporation guarantee a non-corporate loan?

Answer 8

Yes, but only if there is 2/3rd shareholder approval

Question 9

What are the three requirements for a de facto corporation?

Answer 9

A relevant incorporation statute (BCL)
A good faith attempt to comply
The business must be run as a corporation
Note: In NY, this requires the state to have screwed up

Question 10

If there is an inconsistency between the Bylaws and the Certificate, which controls?

Answer 10

The Certificate.

Question 11

How are the bylaws written?

Answer 11

Initially, by the incorporators at the organizational meeting.
Afterwards, shareholders may amend or adopt new bylaws.
The Board can only amend if the Certificate or Shareholder-adopted bylaws allow it.

Question 12

What is a corporate promotor?

Answer 12

One who acts on behalf of a corporation not yet formed

Question 13

Is a corporation liable on pre-incorporation contracts?

Answer 13

Only if the contract is adopted post-incorporation.

This may be done expressly (via board action) or impliedly (the corporation knowingly accepts a benefit of the contract)

Question 14

Is a promotor liable on pre-incorporation contracts?

Answer 14

Yes, unless the contract clearly indicates otherwise or there is a novation where the corporation replaces the promotor. Adoption merely makes the corporation liable as well, it is not a novation.

Question 15

What is the secret profit rule?

Answer 15

A promotor may not make a secret profit on dealings with the corporation

Question 16

How do you determine A’s profit for property sold to the corporation before A became a promotor?

Answer 16

Price paid by corporation - fair market value

Question 17

How do you determine A’s profit for property sold to the corporation after A became a promotor?

Answer 17

Price paid by corporation - price paid by promotor

Question 18

How does a foreign corporation “qualify” in NY?

Answer 18

Apply to the NY Dep’t of State and designate the Sec. of State as an agent for service of process. Additionally, the corporation must be in good standing in their home state.

Question 19

What are the penalties for failure to “qualify”?

Answer 19

The foreign corporation may not sue until they qualify, pay fees, and any accrued interest