Corporation 9-15 Flashcards
When does a Promoter have personal liability, and what are the TWO exceptions to this?
Upon entering any pre-incorporation contracts, EVEN IF the corporation subsequently adopts the contract.
Two exceptions are:
There is a subsequent novation; OR
The contract explicitly provides that the promoter has no personal liability on the contract.
Priority: HIGH
When is a Corporation liable on pre-incorporationcontracts entered into by a Promoter?
When the corporation expressly or impliedly adopts the contract post-incorporation.
Expressly = through board resolution.
Impliedly = corp. knows the material terms and accepts/retains the benefits.
Priority: HIGH
When are a Corporation’s activities deemed
ultra vires?
When a corporation’s activities are outside of the scope of the stated corporate purpose.
Priority: Low
Ultra Vires acts under:
Common Law
vs.
RMBCA
Common Law = deemed void and unenforceable.
RMBCA = generally valid and enforceable (those who approved the transaction can be held personally liable).
Priority: Low
A court will Pierce the Corporate Veil, and hold the shareholders personally liable in what situations?
The corporation is acting as the alter egoof the shareholders (little or no separation between the shareholder and corporation);
Where the shareholders failed to follow corporate formalities;
The corporation was inadequately capitalized at its inception to cover debts/liabilities; OR
To prevent fraud.
*Even if a court doesn’t pierce the veil, a person is ALWAYS liable for their own torts.
Priority: HIGH
What do shareholders in a Close-Corporation owe the other shareholders?
The duty of loyalty and good faith, and will be liable for any damages resulting from a breach of these duties.
Priority: HIGH
What is watered stock?
Stock that is issued at a price that is greater than its actual market value.
Priority: Low
