Exam 2: Corporations

Question 1

How is a corporation formed?

Answer 1

Formally; a corporation is a creature of statute, an artificial “person”

Question 2

What is the tax form for a “C” corporation

Answer 2

Form 1120

Question 3

What are a corporations constitutional rights?

Answer 3

• Equal Protection
• Access to courts, sued or be sued
• Due Process
• Freedom from unreasonable search and seizure and double jeopardy
• Freedom of speech

Question 4

What are corporations liable for under the doctrine of respondeat superior?

Answer 4

“let the master respond for the agent’s actions”

Liable for the torts committed by its agents or officers within the course and scope of their employment.

Question 5

Domestic Corporation

Answer 5

Corporation doing business in its state of incorporation

Question 6

Foreign Corporation

Answer 6

Corporation doing business in a state other than its home state

Question 7

Alien Corporation

Answer 7

Corporation formed in another country doing business in the United States

Question 8

Public Corporation

Answer 8

Corporation with a political or governmental purpose, for the public good

Question 9

Private Corporation

Answer 9

Corporation held by individuals for their own benefit and profit

Question 10

Close Corporations

Answer 10

• Shares held by few shareholders
• More informal management, similar to a partnership
• Restriction on transfer of shares

Question 11

“S” Corporation

Answer 11

Taxed under Schedule S of the IRC, avoiding the double taxation. Corporation is domestic, fewer than 100 shareholders, only one class of stock

Question 12

Subscription Agreements (hint: preliminary)

Answer 12

Continuing contract with investors for them to purchase stock in a yet-to-be created corporation

Question 13

Promoters

Answer 13

the persons who take the preliminary steps of organizing the venture and attracting investors via subscription agreements

Question 14

Who is liable for subscription agreements?

Answer 14

The promoter is personally liable for pre-incorporation contracts on behalf of the corporation, unless 3rd party agrees to hold future corporation liable.
- held liable until Novation (new contract)

Question 15

Articles of Incorporation

Answer 15

primary enabling document filed with the Secretary of State that includes basic information about the corporation.

Question 16

Incorporators

Answer 16

Person(s) who execute the articles of incorporation

Question 17

Contents of the Articles of Incorporation

Answer 17

• Shares of the Corporation
• Registered Office and Agent
• Incorporators
• Duration and Purpose [perpetually until dissolved; any legal activity]

Question 18

What are the filed article of incorporation called?

Answer 18

Corporate Charter

Question 19

What happens at the first organizational meeting?

Answer 19

• appoint the first board which then approved by laws
• elects/hire officers
• adopts pre-incorporation contracts and activities

Question 20

De Jure Corporation

Answer 20

substantial statutory requirements are met; cannot be attacked by state or 3rd parties

Question 21

De Facto Corporation

Answer 21

statutory requirements NOT met, but promoters made good faith effort to comply with corporate law; corporate status can only be attacked by the state

Question 22

Corporation By Estoppel

Answer 22

if it acts like a corporation, cannot avoid liability by claiming no corporation exists.

Question 23

Where are a corporation’s express powers found?

Answer 23

• State and Federal Statutes

- Corporation’s Articles of Incorporation

Question 24

What are corporation’s implied powers?

Answer 24

Power to perform all acts reasonably necessary to accomplish corporate purpose:

• borrow and lend money
• extend credit
• make charitable contribution

Question 25

Ultra Vires Act

Answer 25

“without authority”; Corporate act that is beyond the express or implied powers of the corporation.

Question 26

Remedies available for an Ultra Vires Act

Answer 26

• Shareholders can bring action for corporation
• Corporations can recover damages from its officers and directors
• Attorney general of state may bring action to dissolve corporation for an ultra vires acts

Question 27

Piercing the Corporate Veil

Answer 27

When a court “in the interest of justice or fairness,” holds shareholders personally liable for corporate acts.

Question 28

What factors do courts consider when looking to pierce the corporate veil?

Answer 28

• 3rd parties tricked into dealing with a corporation rather than the individual
• corporation is set up never to make a profit or remain insolvent or is under capitalized
• statutory formalities are not followed