Corporation Formation Flashcards
Why Form Corp
- Protects owners from personal liability
- Promotes investment
De Jure Corporation
Formed when all steps followed
Promoter (Def)
Before formation: works on behalf of corp to create & fund entity w/ knowledge corp not yet formed
Promoter Liability
Personally liable for knowingly acting on corp’s behalf before incorp
Remains liable after corp comes into existence
Promoter Liability: 3Ps
Personally liable for B/K even after C formed UNLESS:
- Novation
- 3P knew of pre-formation status & agreed to look to corp for performance
- Promoter had no actual knowledge corp’s charter hadn’t been issued
Promoter Liability: Corp
Fiduciary duty
Secret profit (undisclosed commission) on pre-incorporation transaction is a breach
Incorporation Procedure
1.Incorporator signs & files articles w/ state & pays filing fee
- If state accepts articles entity formed on date when articles filed, or later date set out in articles
*filing by state is conclusive proof entity formed
Articles Require:
- Corporation Name (must include indicator, Company, Limited, etc.
- Name + address of local agent for service of process;
- Names & addresses of incorporators;
- Number of authorized shares in each class of stock.
Ultra Vires Actions
Corporate acts beyond what’s permitted in the articles
Issues when corp stated narrow business in articles but engages in activities beyond it
Void at CL
RMBCA Allows Ultra Vires Actions If:
SHs/state can enjoin acts if equitable
Corp can sue those who committed acts
3P cannot assert UV acts as defense to escape liability
Defective Incorporation
Failed to form de jure corp
De Facto Corp
- Person who makes good faith but unsuccessful effort to comply w/ incorp requirements may escape personal liability
- Entity treated as de facto corp & owner not personally liable for obligations incurred in purported corp’s name
Corp by Estoppel
K ONLY
Prevents 3P from denying existence of corp when de facto requirements met (good faith + no knowledge of defects)
Person who deals w/ entity as if it’s a corp is estopped from denying its existence, can’t seek personal liability of owner
Bylaws
Day-to-day rules, can be amended/repealed by SHs
Enforceable as long as don’t conflict w/ state law or articles
Articles v. Bylaws?
Articles win