Formation

Question 1

Pre-incorporation agreements &
promoter liability

Answer 1

• Promoter is personally liable for knowingly acting on behalf of a corp (C) before incorporation, and remains liable after C comes into existence unless:
  1. There is a subsequent novation releasing promoter from liability
  2. The 3rd party looks only to C for performance, or
  3. the promoter had no actual knowledge that the C’s charter has not yet been issued.

Question 2

C’s liability for pre-incorporation transactions?

Answer 2

• Generally not liable, even those for the benefit of C (there is no principal-agent r/ship)
• C is liable if it expressly or impliedly adopts a K by accepting the benefits of the transaction, or gives an express acceptance of liability for the debt.

Question 3

What must be included in the
Articles of Incorporation (AOI)

Answer 3

• MUST include corporate name and be filed with the state
• MAY enumerate powers that C possesses, or limit its duration, may include statement of C’s legal purpose
• Corporate existence begins when the articles are filed, unless the articles establish a later date.

Question 4

Ultra Vires Actions

Answer 4

When a C has stated a narrow business purpose in its AOI then subsequently engages in activities outside that stated purpose;

A 3rd party generally can NOT escape liability for a transaction that is an ultra vires corporate act.

Question 5

What is a De Jure Corporation?

Answer 5

Occurs when all statutory requirements for incorporation are satisfied; C is liable for C’s actions

Question 6

Defective Corporation
Good faith vs. Lack of Good faith

Answer 6

• Good Faith effort: two ways to escape liability:
  (1) de facto C; owner must make a GF effort to comply w/ the incorporation rqmts AND operate C w/out knowing the rqmts were not met.
  (2) corporation by estoppel A person dealing with an entity in a contractual agreement as if it were a C is estopped from denying its existence and seeking personal liability
• Lack of Good Faith: A person who conducts business as a C w/out complying with the incorporation reqt’s is personally liable for the non-existent C’s obligations