Corporations Flashcards
On Jan 10, D, acting as promoter for a corporation not yet formed, leases a building from Peter and signs the lease in the name of the corporation. On Feb 20, the corporation is formed. At the first meeting, the corporation’s Board adopts the lease contract. Is D still personally liable on the contract?
Yes. TRICKY! The corporation is liable once it adopts or accepts a benefit from the contract, but until there has been a novation, D is still on the hook.
For how long is a preincorporation subscription irrevocable? What about a postincorporation subscription?
6 months.
Post: revocable until accepted by the Board.
A corporation sets a $3 par for a 10,000 stock issuance. You buy them for $2.50 each. The corporation files suit seeking $5,000 from you for the “water.” What result? Could it instead file suit against its own directors for selling below par?
The corporation wins. You’re charged with notice of the par, so you’re liable.
The directors probably are liable, assuming they knew about the par.
You have preemptive rights in Corporation. Corporation intends to issue 3,000 stock to Suzie in consideration for her providing the corporation services and real estate. Do you have the right to acquire some of those stocks and maintain your share?
No. Preemption only grants that right when the corporation issues stock FOR MONEY. Payment for services or goods are not money.
May a corporation give a director a loan to attend business classes?
Probably. The general rule is that a corporation can make loans to directors if it is reasonably likely to benefit the corporation. It’s a half-step harder to meet this than the usual misfeasance rule, where a court won’t look at how advisable an action is at all, so long as the director took reasonable steps to confirm it was a good idea.
What must be true to pierce the corporate veil and hold a shareholder liable for corporate activity?
- It must be a closely held corporation.
- The defendants must have abused the privilege of incorporating
- Fairness requires holding them liable
S does not own stock when a derivative claim arose, but his uncle did. His uncle then dies and S inherits Uncle’s stock. Does S now have standing to bring the derivative claim?
Yes. Getting a qualifying stock by operation of law brings with it the rights to bring a derivative suit.
Three requirements to pierce the corporate veil?
- Close corporation
- Abused privilege of incorporating
- Fairness requires holding them accountable
