Corporation formation Flashcards
Mini Outline – Corporation Formation
(1) incorporation
(2) organization
(3) de facto corp
(4) corp by estoppel
Incorporation trigger
Occurs upon execution and filing of the articles of incorporation (Articles)
Execution elements of incorporation
Proper execution requires the incorporator(s) prepare and sign the Articles and include the:
▪ name and address of each incorporator;
▪ address of initial registered office and name of initial registered agent;
▪ number of shares authorized to issue; and
▪ name of the corp.
Proper filing reqs for incorporation
Proper filing requires an incorporator to file the Articles at the secretary of state’s office and pay the filing fee
Date of incorporation
The date of incorporation is the date of filing unless the Articles delay the date of effectiveness (up to 90 days from date of filing)
Organization requirement for corps
After incorporation, a corp. must be properly organized at an organizational meeting called by the incorporators or the initial directors (if any) named in the Articles
Consequence for failure to organize
Failure to properly organize may expose shareholders to personal liability for corp. debt and obligations
Elements of proper organization
naming or election of directors;
appointing of officers; and
adopting the corporate bylaws
Bylaws definition
Bylaws are internal rules governing its actions and relations to shareholders, directors, and officers
What bylaws may specify
May include any provisions for regulation / management of the corp. that are not inconsistent with the Articles
▪ Bylaws often specify:
o Time/place for annual shareholder’s meeting;
o Record date;
o Number of shares to constitute a quorum;
o Percentage of votes to authorize corp. action; and
o Restrictions on transferability of shares
De facto corp rule
If statutory compliance is insufficient for de jure status, a de facto corp. may still have been formed if:
o a good faith, colorable attempt was made to comply with the statute; and
o corporate principals acted as if they were a corp
Corp by estoppel
In a contract dispute between a third party and an unformed corp. believed to be
properly formed, a court may:
* estop the third party from alleging defective incorporation if that would unjustly
expose the corp.’s principals to liability
* estop the corp. from arguing it isn’t liable due to defective incorporation if it
would unjustly deprive the third party of relief
Limitation on corp by estoppel
Can’t use this doctrine as a defense to a tort claim
