Corporation Formation

Question 1

Why Form Corp

Answer 1

1. Protects owners from personal liability
2. Promotes investment

Question 2

De Jure Corporation

Answer 2

Formed when all steps followed

Question 3

Promoter (Def)

Answer 3

Before formation: works on behalf of corp to create & fund entity w/ knowledge corp not yet formed

Question 4

Promoter Liability

Answer 4

Personally liable for knowingly acting on corp’s behalf before incorp

Remains liable after corp comes into existence

Question 5

Promoter Liability: 3Ps

Answer 5

Personally liable for B/K even after C formed UNLESS:

1. Novation
2. 3P knew of pre-formation status & agreed to look to corp for performance
3. Promoter had no actual knowledge corp’s charter hadn’t been issued

Question 6

Promoter Liability: Corp

Answer 6

Fiduciary duty

Secret profit (undisclosed commission) on pre-incorporation transaction is a breach

Question 7

Incorporation Procedure

Answer 7

1.Incorporator signs & files articles w/ state & pays filing fee

2. 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

Question 8

Articles Require:

Answer 8

1. Corporation Name (must include indicator, Company, Limited, etc.
2. Name + address of local agent for service of process;
3. Names & addresses of incorporators;
4. Number of authorized shares in each class of stock.

Question 9

Ultra Vires Actions

Answer 9

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

Question 10

RMBCA Allows Ultra Vires Actions If:

Answer 10

SHs/state can enjoin acts if equitable

Corp can sue those who committed acts

3P cannot assert UV acts as defense to escape liability

Question 11

Defective Incorporation

Answer 11

Failed to form de jure corp

Question 12

De Facto Corp

Answer 12

1. Person who makes good faith but unsuccessful effort to comply w/ incorp requirements may escape personal liability
2. Entity treated as de facto corp & owner not personally liable for obligations incurred in purported corp’s name

Question 13

Corp by Estoppel

Answer 13

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

Question 14

Bylaws

Answer 14

Day-to-day rules, can be amended/repealed by SHs

Enforceable as long as don’t conflict w/ state law or articles

Question 15

Articles v. Bylaws?

Answer 15

Articles win

Question 16

Piercing Corporate Veil

Answer 16

Pierce veil of limited liability to recover directly from investor/SH

Question 17

PCV Grounds

Answer 17

1. Alter Ego
2. Undercapitalization
3. Fraud
4. Self-Dealing
5. Siphoning Funds
6. Using Corp Form to Avoid Statutory Requirements
7. SH’s domination of corp

Question 18

Alter Ego

Answer 18

Failing to observe corp formalities, corp is SH’s alter ego

Question 19

Undercapitalization

Answer 19

failure to maintain sufficient funds to cover liabilities

Question 20

Fraud

Answer 20

Parties engaged in fraud/fraud-like behavior