Corporation Formation and Dissolution

Question 1

De Jure Corporation Formation

Answer 1

1. Person = one or more incorporators execute articles and deliver to secretary of state
2. Paper = articles of incorporation filed with secretary of state that includes:** (i) registered agent’s name; Iii) street address of office; (iii) corporation’s name (Corp., Co. Inc., Ltd.); (iv) authorized # of shares / voting rights / preferences; (v) Name/Address of Incorporates; (vi) Statement of Purpose**
3. Act = deliver norarized articels –> if accepted and filed by state –> corporation has been formed

Question 2

Corporation Choice of Law

Answer 2

Internal Affairs Doctrine: Law of state where coproration is formed applies

Question 3

Taxation of Corporation

Answer 3

Double Tax of Corporate Profits AND Dividends unless an **S Corporation **= no more than 100 shareholders + all shareholders us citizens + only one class of stock + not publicly traded

Question 4

De Facto Corporation

Answer 4

Law treats you as Corporation (inless state brings action) if:
1. Relevant incorporation statute in state (always yes)
2. Thought you complied with statute
3. Good faith attempt to comply with statute
4. Act like a corporation

Question 5

Corporation by Estoppel

Answer 5

Peson who deals with a business entity believing it is a corporation, or one who incorrectly holds out the business as a corporation, may be estopped from denying corporate status

Question 6

Rule Setup for Piercing the Corporate Veil

Answer 6

Corporate Shareholder not liable for debts of the Corp., except when the court pierces the corp. veil and disregards the corporate entity

Question 7

Grounds for Piercing the Corporate Veil

Answer 7

1. Alter Ego Doctrine: (i) do not treat corporation as a seperate entity; (ii) commingle funds; (iii) use corporate assets for personal purposes; (iv) do not hold meetings
2. Undercapitalization (capital investment insufficient to cover foreseeable liablilites)
   3.Perpetrate a Fraud= corp formed to hide behind obligations BUT can be formed to limit future liabilities
3. Estoppel: Shareholder represents he will be personally liable*

Question 7

Preemptive Rights of Shareholders

Answer 7

Right of existing shareholder to maintain % of ownership by buying stock if there is a new issuance is allowed but not presumed

Question 8

Scope of Corporate Veil Piercing

Answer 8

-only active shareholders generally liable
-generally only for tort purposes

Question 9

Types of Dissolution:

Answer 9

1. Voluntary
2. Administrative
3. Judicial

Question 10

Voluntary Dissolution

Answer 10

Before shares Issued: may be dissolved by majority of incorporators or initial directors by delivering articles of dissolution to the state

After Shares Issued: May dissolve by corporate act approved under the fundamental changes procedure

Question 11

Administrative Dissolution

Answer 11

Action brought by state to dissolve a corporation for failure to pay fees or penalties, failure to file an annual report, or failure to maintain a registered agent in the state

Question 12

Judicial Dissolution

Answer 12

Sought by Attorney General: If corporation fraudulently obtained articles or is abusing its scope/authority

*Sought by Shareholders if One of following:
1. Directors deadlocked and shareholders cant solved –> threatening irreprable injury
2. Directors have acted illegally, oppressively, or fraudulently
3. Shareholders Deadlocked in voting power and have failed to elect one or more directors for at least two consecutive annual meetings
4. Corporate assets being wasted or misused

* Sought by Creditors:* Allowed where corporation has admitted in writing creditor’s claim is due and corporation is insolved OR claim reduced ot judgment returned unsatisfied and corporation is insolvent.

Question 13

Liability where no Corporation

Answer 13

RULE: A person who purports to act on behalf of a corporation knowing there was a valid incorporation is personally liable
Exceptions
-De Facto Corporation = colorable compliance with statute / exercise of corporate privileges
-Corporation by Estoppel = people treating business as valid corporation
-Passive Invenstors

Question 14

Ultra Vires Act

Answer 14

DEF:An act outside the scope of the Corporation’s stated

EFFECT:
Traditional: Unenforceable
Modern: Raised only by
1. *Shareholder seeking to **enjoin an ultra vires action
2. **Corporation seeking damages against officers or directors who authorized ultra vires act
3. *State, seekign to dissolve the corporation for engaging in an ultra vires act

Question 15

Priority of Creditors at Dissolution

Answer 15

1. Secured Creditors
2. Unsecured Creditors (including shareholders on equal footing with outside unsecured creditors)

NOTE: If on same level, entitled to pro rata share of debt

Doctrine of Equitable Subordination (Deep Rock Doctrine): Shareholders’ claims may be subordinate if any type of wrongdoing is attributable to them