De Facto Corporation & Corporation by Estoppel

Question 1

De Facto Corporation

Answer 1

If statutory formalities are insufficient for de jure status (a corp. org. in compliance with statute), a de facto corporation may still have been formed if:

• a good faith, colorable attempt was made to comply with the incorporation statute; and
• the corporate principals, in good faith, acted as if they were a corporation

Question 2

Importance of a Finding of a De Facto Corporation?

Answer 2

Directors and shareholders will be insulated from liability

Question 3

Corporation by Estoppel

Answer 3

When a K dispute arises between a third party and an entity believed to be a corporation, a court may estop:

• the third party from alleging that the corporation is defectively incorporated if that would unjustly expose the corporate principals to liability; or
• the business entity from alleging that it is not legally a corporation liable on the contract as a corporation if that would unjustly deprive the third party of relief from injury

Question 4

Corporation by Estoppel: Shield v. Sword

Answer 4

-The corporation by estoppel doctrine can be used as a shield (to defend against a claim on a K) or as a sword (to assert a claim on a K).

Question 5

Corporation by Estoppel: Tort v. K

Answer 5

• The corporation by estoppel doctrine is not a defense to a tort claim, as the claimant has not previously dealt with the principals as if they were a corporation.
• However, in K claims, where the parties necessarily had a prior business relationship, the doctrine becomes relevant and potentially applicable.