Corporations

Question 1

Promoter Liability

Answer 1

The promoter is individually liable on contracts formed before the corporation came into existence, even after the corporation is formed. They can escape by novation or adoption.

Question 2

Promoter Liability

Novation

Answer 2

When the corporation and the 3rd party agree to let the promoter out of the contract and take over it.

Question 3

Promoter Liability

Adoption

Answer 3

If the corporation accepts the benefits of the contract, then the promoter is released from liability.

Question 4

Formation of a Corporation

What is needed to form a corporation?

Answer 4

In order to form a corporation, the articles of incorporation must be filed with the state. The articles must include cetain basic information, including the number of shares the corporation is authoried to issue. Unless a delayed date is specified in the articles, the corporate existence begins when the articles are filed.

Question 5

Formation of a Corporation

What is the consequence of not complying with statutory requirements for formation?

Answer 5

When a person conducts a business as a corporation without attempting to comply with the statutory requirements, that person is liable for any obligations the business incurred in the name of the nonexistent corporation.

Question 6

Formation of a Corporation

Result of Statutory Compliance?

Answer 6

When all of the statutory requirements for incorporation have been satisfied, a de jure corporation is created. Consequently, the corporation, rather than persons associated with the incorporation (like shareholder, directors, and officers), is liable for activities undertaken by the corporation. However, when a corporation has not been created it is treated like a general partnership.

Question 6

Formation of a Corporation

What is a partnership?

Answer 6

A partnership is an association of two or more person to carry on a for profit business as co-owners. In a general partnership, each partner is jointly and severally liable for all partnership obligations.

Question 7

Formation of a Corporation

What if a person tries and fails to incorporate properly?

Answer 7

When a person makes an unsuccessful effort to comply with the incorporation requirements, that person may be able to escape personal liability under either de facto corporation doctrine or the corporation by estoppel doctrine. Under either doctrine, the owner must make a good-faith effort to comply with the incorporation requirements and must operate the business as a corporation without knowledge that the requirements have not been met. If the owner has done so, then the business entity is treated as a de facto corporation, and the owner, is not personally liable for obligations incurred by the corporation.

Question 8

Formation of a Corporation

What if a person treats an entity as a coporation before it exists?

Answer 8

Under corporation by estoppel, a person who deals with an entity as if it were a corporation is estopped from denying its existence at a later point, and is thereby prevented from seeking personal liability of the business owner. This doctrine is limited to contractual agreement, that is it does not cover tort liability.

Question 9

Formation of a Corporation

Coporation contracts beyond the scope of its business purpose?

Answer 9

If a corporation states in its articles of incorporation that they have a narrow or specific purpose, and that corporation enters into a contract beyond the scope, they have committed an ultra vires act. When that occurs a shareholder can come in and enjoin the action or take action against the officer responsible for the act.

Question 10

Issuance of Stock

How is it created?

Answer 10

Issuance of stock must be approved by the board of directors, who determine what value paid for the stock is adequate.

Question 11

Issueance of Stock

What is par value stock?

Answer 11

Par value stock means the minimum issuance price. The stock cannot be sold for less than that amount, and if it is the board can be held liable. IF a shareholder buys that stock and know that they are getting it for less than par value, they can also be held liable.

Stock sold for less than par value is called watered stock.

Question 12

Shareholders

Who appoints the board?

Answer 12

Shareholders elect the board of by a vote at the organizational meeting.

Question 13

Shareholders

Voting

Answer 13

Shareholders have a right to vote on changes in the corporation.

Question 14

Shareholders

Proxy voting?

Answer 14

Allows a person to vote on behalf of the shareholder. Generally this privilege is revocable unless (1) the proxy states it is ittevocable and (2) the proxy has some interest in the shares other than voting. (Coupled with interest or given as a security)

Question 15

Shareholders

Bylaws?

Answer 15

Shareholders have the power to amend a corporation’s bylaws under state law. A corporation’s bylaws for the management of the corporation’s business or regulation of its affairs are enforceable so long as the bylaws do not conflict with the law or articles of incorporation. The nomination of directors and the procedure for nominating directors are common provisions in the bylaws and are consistent with regular corporate practice.

Question 16

Shareholders

Shareholder Agreements

Answer 16

Shareholder agreements are instruments which shareholders use to form an agreement to vote their shares together.

Question 17

Meeting Notice

Directors are

Answer 17

1. Entitled to notice of a special meeting. Unless provided otherwise, notice must be provided at least two days prior to the meeting and should state the date, time, and place. The notice need not describe the special purpose.
2. Entitled to notice of a special meeting, but a director’s attendance waives notice of that meeting unless the director promptly objects to lack of notice.

Question 18

LLC’s