Formation of the LCC and piercing the corporate veil

Question 1

when is a corporation formed?

Answer 1

A corporation is formed when the articles of incorporation are filed with the sectary of state

The articles of incorporation must set out the following:

(1) The name of the corporation
(2) The maximum number of shares the corporation is authorized to issue; And
(3) The names and addresses of:
- The first board of directors
- The incorporators executing the articles of incorporation
- The initial registered agent

Question 2

How can an articles of incorporation be amended?

Answer 2

The articles of incorporation may be amended if there is a majority not from the directors and shareholders.
However minor amendments may be made by the board of directors without shareholder approval

Question 3

Corporate bylaws

Answer 3

Corporate bylaws may contain any provision for managing the business and regulating the affairs of the corporation to the extent that it is consistent with the law and articles of incorporation

Question 4

what happens if there is a conflict between the bylaws and articles of incorporation?

Answer 4

The articles of incorporation govern

Question 5

How can the bylaws be amended

Answer 5

the bylaws may be amended or repealed by the corporation’s shareholders. The board of directors may also amend or repeal the bylaws UNLESS the shareholders expressly specify otherwise

Question 6

Promoter liability

Answer 6

A promoter acts on behalf of a corporation that is yet to be formed. A promoter is personally liable for any contracts entered into on behalf of the corporation so long as both parties to the transaction know that the corporation has not yet been formed.

However, a promoter will not be held personally liable if:

(1) There is a novation
(2) The promoter is able to obtain indemnity from the corporation

Question 7

Corporation liability - pre incorporated contracts

Answer 7

A corporation is NOT bound by any pre-incorporation contracts that were entered into by promoters UNLESS the corporation adopts such contracts.
An adoption can be express or implied from the actions of the corporation or its agents

Question 8

Piercing the Corporate veil

Answer 8

Courts allow for a creditor to pierce the corporate veil and hold a shareholder personally liable for the debts of a corporation when:

(1) The shareholder has dominated the corporation to the extend that the corporation may be considered the shareholder’s alter ego
(2) The shareholder failed to follow corporate formalities
(3) The corporation was undercapitalized
(4) There is fraud or illegality present

Question 9

passive investor liability

Answer 9

Once the corporate veil has been pierced, courts generally hold All the shareholders liable. However, some courts do not extend liability to passive investors