Formation and Incorporation

Question 1

What does the promoter do?

Answer 1

Actively engages into activities that bring the corporation into existence as a business entity

Question 2

Is a promoter liable for pre-incorporation transactions?

Answer 2

Yes, unless:

1. The contract clearly relieves the promoter of liability, or
2. a novation is signed.

Question 3

Is an express adoption of the contract by the corporation sufficient to relieve a promoter of liability?

Answer 3

No

Question 4

When can a promoter be liable to corporation for pre-incorporation conduct?

Answer 4

For breach of either fiduciary duties or the duty of good faith

Question 5

What may a promoter seek as reimbursement from the corporation?

Answer 5

1. Formation costs; and
2. Pre-incorporation agreements for which the promoter is personally liable, to the extent the corporation received a benefit

Question 6

When is a corporation liable for pre-incorporation transactions?

Answer 6

Generally never. Only when the corporation adopts the contract

Question 7

Who is an incorporator?

Answer 7

The person who signs and files the articles of incorporation with the state

Question 8

By signing and filing the articles of corporation, is an incorporator liable for a contract entered into by a promoter?

Answer 8

No

Question 9

Where must the articles of incorporation be filed?

Answer 9

Corporation Bureau of the Department of State

Question 10

What must be included in the articles of incorporation?

Answer 10

1. Name and address of the incorporator
2. Incorporator’s signature
3. A unique name including “corporation,” “company,” “incorporated,” “limited,” or an abbreviation thereof
4. Name and address of registered agent
5. State of incorporation under BCL of 1988
6. Duration, if not perpetual

Question 11

How many copies of the articles of incorporation must be filed with DOS?

Answer 11

Two

Question 12

Where must the corporation be advertised?

Answer 12

An advertisement about the intent for filing (or actual filing) must be published in at least two newspapers

Question 13

What are the three ways in which an ultra vires act can be challenged?

Answer 13

1. Shareholder injunctions;
2. Corporate action against the director, officer, or employee who engages in such action; or
3. The state can seek an injunction

Question 14

Are charitable deductions ultra vires?

Answer 14

No, they are allowed by a corporation

Question 15

Can a third party who enters into a transaction with a corporation escape liabiltiy by contending the corporation acted ultra vires?

Answer 15

No

Question 16

When can someone be liable for conducting business as a defective corporation?

Answer 16

1. If acting in bad faith; or

2. If in good faith as a de facto corporation

Question 17

When is a person bound by corporation by estoppel?

Answer 17

A party who contracts with an entity as a corporation is estopped from denying its existence, provided that the business owner made a good faith effort to comply with the incorporation requirements