Corporations: Pre-incorporation and Formation

Question 1

Promoters

Answer 1

A person who prepares corporation for commencing business and supervises compliance. Promoters bear significant liability, particularly to creditors, for transactions entered into prior to formation.

Question 2

Contracts with third parties

Answer 2

a corporation is not liable for contracts made on its behalf by promoters prior to incorporation, unless the contact is expressly or impliedly ratified by the corporation after formation.

Question 3

Certificate of incorporation

Answer 3

corporation is created by delivering a properly executed COI to the Department of state. COI must include:

(1) name
(2) purpose
(3) county of office headquarters
(4) number and type of stock
(5) designation of the Secretary of State as an agent for service of process, and
(6) the name and address of the registered agent, if one is chosen

Question 4

Organization

Answer 4

a formal meeting of the incorporator must be held after the corporation has been formally organized to adopt bylaws, elect directors, and conduct relevant business

Question 5

Bylaws

Answer 5

may contain any provision relating to the business of the corporation. May be changed by a majority of the vote of the shareholders case at the meeting

Question 6

Defense of Ultra Vires

Answer 6

A corporation cannot be obliged to undertake a contract or activity that is beyond the scope of its powers as described in the COI or bylaws

Question 7

limited liability shareholders

Answer 7

one of the strongest reasons for attaining corporate status is the limited liability for the shareholders, meaning that the shareholders are not personally liable for the debts of the corporation.

Question 8

Piercing the corporate veil

Answer 8

SH are not ordinarily personally liable for corporate obligations. The corporate veil may be pierced, however, allowing SH to be held personally liable for corporate contractual or tort obligations. This is done to prevent fraud or injustice.

Question 9

Piercing the veil requires . . .

Answer 9

the plaintiff must show that there is an abuse of the corporate form and that it would not be inequitable to impose liability. Courts will look to see if the corporation is acting as the alter ego of shareholders (personal use of funds, commingling, failure to observe corporate formalities).