Formation

Question 1

What is needed in order to form a corporation?

Answer 1

1. Person: a person or entity, known as the incorporator, must execute the articles and deliver them to the Secretary of State.
2. Paper: the articles of the corporation must exist.
3. Act: The incorporator must notarize the articles, pay the required fees, and deliver them to the secretary. Also, the Secretary of State must sign off on the articles.

Once the Secretary signs off, the corporation is formed.

Question 2

What must articles of incorporation contain?

Answer 2

1. The name of the corporation. The name must include the words “corporation,” “company”, or “limited.”
2. The name and address of each incorporator
3. Identification of a registered agent and the street address of the registered office
4. and stock information including authorized stock

Question 3

What happens at an organizational meeting?

Answer 3

1. If directors were named in the article, the directors complete the organization of the corporation by selecting officers and adopting initial by laws.
2. If no directors were named, the incorporators hold a meeting to elect directors and complete the organization of the corporation by selecting officers and adopting initial by laws.

Question 4

What states laws govern the internal affairs of a corporation?

Answer 4

The state in which it was incorporated.

Question 5

What kind of corporations don’t pay income taxes as entities?

Answer 5

S Corporations

Question 6

What is an S Corporation?

Answer 6

A corporation (i) with no more than 100 shareholders, (ii) all of whom are human and US citizens or residents. (iii) It only deals in publicly traded stock.

Question 7

What is defective incorporation?

Answer 7

The proprietors fail to incorporate the company.

Question 8

What is the consequence of defective incorporation?

Answer 8

The proprietors are liable for the company’s liabilities.

Question 9

How can a proprietor escape liability when a corporation is defectively formed?

Answer 9

1. They did not know that incorporation was defective,

AND

2. there is a de facto corporation

OR

3. Corporation by estoppel

Question 10

When has a de facto corporation been created?

Answer 10

1. There is a relevant incorporation statute
2. The parties made a good faith, colorable attempt to comply with the statute, and
3. There has been some excercise of corporate privileges (acting as though there was a corporation)

A person that was aware that he had not validly formed a corporation will be liable. Ignorance of the defect is essential.

Question 11

Is a de facto corporation treated as a corporation in actions by the state?

Answer 11

No.

Question 12

What is corporation by estoppel?

Answer 12

When someone treats a business as a corporation they will be estopped from denying that it is a corporation.

Question 13

In what kind of cases does corporation by estoppel apply?

Answer 13

In contract.

NEVER in tort.

Question 14

When can a corporation adopt a contract from an promoter?

Answer 14

1. Expressly
2. Implicitly by accepting a benefit under the contract.

Question 15

Are promoters liable under contracts they form?

Answer 15

Yes.