Formation

Question 1

What does the bar test

Answer 1

BA tests majority law, not CA law

Question 2

Requirements

Answer 2

requires people (incorporators), papers, and filing

Question 3

Incorporators

Answer 3

incorporators must sign articles and deliver them to the secretary of state

can be a human beings or business entity

Question 4

Articles of incorporation

Answer 4

1. contract between the corporation and its shareholders, and the corporation and the states
2. must contain:
   i. corporate name (must contain Corp., Company (Co.), Inc., or Ltd.)
   ii. name and address of each incorporator
   iii. name and address of each initial director
   iv. name of registered agent and address of the registered office (company’s legal representative for service of process)
   v. statement of corporate purpose- can be very general like “engage in all lawful activity”. if there is a specific statement of purpose, ultra vires rules triggered
   vi. capital structure (stock)
   a. authorized stock
   b. shares per class
   c. voting rights and preferences of each class

d. definitions
i) authorized stock: the maximum the corporation can sell
ii) issued stock: maximum shares the corporation actually sells
iii) outstanding stock: shares that have bene issued and not reacquired

3. duration may or may not be stated
   i. if no duration stated, perpetual existence presumed

Question 5

Ultra vires activity

Answer 5

1. ultra vires activity: activity the corporation engages in that is beyond the scope of its corporate purpose stated in articles of incorporation
2. if ultra vires acts occur:
   i. ultra vires contracts are valid as to third parties
   ii. shareholders can seek an injunction to stop the ultra vires act
   iii. corporation can sue responsible managers for ultra vires lawsuits

Question 6

Filing

Answer 6

1. notarized articles delivered to secretary of state, and payment of required fees
2. if secretary of state accepts the filings, it is conclusive proof of valid formation
3. upon filing
   i. a de jure corporation exists (lawful)
   ii. BoD holds organizational meeting: select officers, adopt bylaws, etc.

Question 7

Legal significance of incorporation

Answer 7

1. the law of the state of incorporation governs a corporation’s internal affairs (roles and duties of directors, officers, and SHs)
   i. applies even if the corporation does not do business in that state
2. the corporation is a separate legal person
   i. can sue and be sued
   ii. can hold property
   iii. can be a partner in a partnership

Question 8

Corporate taxation

Answer 8

i. double taxation: corporation is taxed on its profits, and SHs are taxed on distributions
ii. S corporation: some small corporations are eligible for pass-through taxation
a. 100 SHs or less
b. all SHs human and US citizens or residents
c. one class of stock
d. not publicly traded

Question 9

Corporate limited liability

Answer 9

i. directors or officers are not personally liable for what the entity does
ii. shareholders are not personally liable for what the entity does
iii. the corporation itself is liable for what it does

Question 10

De facto corporation; corporation by estoppel

Answer 10

1. bar: write: the de facto corporation and corporation by estoppel are abolished in many states, but if they apply, then:
2. applies when proprietors fail to form a de jure corporation
3. doctrines allow deficiencies in formation to be ignored
   i. allows the business to be treated as a corporation instead of a general partnership
   ii. requires unawareness of failure to form a de jure corporation (i.e. nobody knows that formation was done wrong)

Question 11

De facto corporation reqs

Answer 11

i. requirements:
a. a relevant incorporation statute (all states do)
b. parties made a good faith attempt to comply with the statute
c. some exercise of corporate privileges (acting like we have a corporation)

ii. effect: business is a corporation for all purposes except in (quo warranto) action by the state
iii. ex. articles of incorporation lost in the mail

Question 12

Corporation by estoppel

Answer 12

i. one who treats a business as a corporation may be estopped from denying it is one
ii. ex. merchant who treats the business as a corporation cannot later try to sue owners individually as partners
iii. works both ways: estops both the corporation and third parties dealing with the corporation

iv. only applies in contract cases, does not apply in tort cases
a. tort plaintiffs do not treat the business as a corporation