Formation

Question 1

Promoter liability

Answer 1

A promoter is one who enters into contracts that secure capital for purposes of bringing the corporation into existence.

The promoter is personally liable for a contract entered into pre-incorporation, even after the corporation comes into existence.

Question 2

Promoter liability: exceptions

Answer 2

(1) Novation:

The corporation and the third party agree to substitute the corporation for the promoter;

(2) Adoption:

The corporation takes the benefits of the contract.

Question 3

Incorporation

Answer 3

A corporation must file articles of incorporation with the state. The articles must include certain basic information, including the number of shares the corporation is authorized to issue.

Question 4

Incorporation: ultra vires doctrine

Answer 4

If a corporation acts outside of the scope of its purpose—although most modern corporations are empowered to act toward any legal purpose—a shareholder can file suit:

(1) To enjoin the action; or
(2) Take action against the officer, director, or employee who engaged in the ct.

Question 5

De facto corporation doctrine

Answer 5

A party can still invoke corporate protections if:

(1) it has made a good-faith attempt to incorporate yet fails to meet the statutory requirements for incorporation; and
(2) operates without knowing that the requirements have not been met.

If the requirements are met, then the business entity is treated as a de facto corporation, and the owner and co-owners, as a de facto shareholders, are not personally liable for obligations incurred in the purported corporation’s name.

Question 6

Corporation by estoppel doctrine

Answer 6

At contract, a third party is estopped from asserting that a corporation was not formed appropriately if:

(1) it entered into a contract with the putative corporation as though it were property incorporated; and
(2) the third party had an opportunity to discover that it was not actually incorporated.

The doctrine is an alternative to the de facto corporation doctrine.

Question 7

Incorporation: effective date

Answer 7

Unless a delayed date is specified in the articles, the corporate existence begins when the articles are accepted and filed by the state secretary of state.