Formation Requirements and Other Formation Issues Flashcards
What are the requirements of formation known as in Virginia?
They are absolute requirements
What are the absolute requirements for formation of C in VA?
(1) Incorporators
* One or more persons must act as incorporators and file the articles of incorporation with the S.C.C.
(2) Content of Articles–MUST include:
* Number of authorized shares
* Preferences, if they exist
* Registered agent and office
* Details as to incorporators
* Name of corporation
“A PAIN”
What are authorized shares?
The maximum number of shares the corporation is authorized to issue
* Note that this means C can sell less–ceiling, not floor (can never sell more without first amending AOI to increase)
What does it mean to say that the articles must include “preferences?”
Articles must describe rights and priorities assigned to each class of stock
What are the requirements for the registered agent and office?
Must be: (1) VA resident who is either officer or director of corporation or member of VA bar; or (2) corporation, LLC, or registered LLP authorized to transact business in VA
What must the name contain?
Some “indicia” of corporate status (e.g., Co., Ltd., Inc., etc.)
What are the bylaws?
The laws by which the corporation is actually governed
* IN VA, NEED NOT BE IN ARTICLES TO COMPLY WITH FORMATION REQUIREMENTS (“red herring”)
* C must adopt bylaws, but need not be in AOI
What happens if you don’t properly form a corporation?
It’s a misdemeanor for anyone to do business as a corporation in VA unless organized as C
What are the consequences of proper formation?
Becomes a “separate legal person,” and as such:
* C liable for its own debts and obligations
* Limited shareholder liability arises (stockholders not liable for debts/obligations of C itself–only must pay full consideration for shares, otherwise no liability)
What is the exception to limited liability for shareholders?
Piercing the corporate veil (to avoid fraud or unfairness)
What are three common situations where the veil should be pierced?
(1) Alter ego
* A controlling shareholder fails to observe sufficient corporate formalities (e.g., commingling funds)
(2) Undercapitalization
* When C not formed with sufficient capital to meet its foreseeable liabilities (e.g., nuclear waste–common bar example)
(3) Misuse of Corporate Form
* Prevent SHs from using corporate form to avoid existing personal obligations, perpetrating fraud or crime, committing injustice, or gaining unfair advantage
In what types of close cases will equity (piercing veil is equitable remedy) be in favor of P?
More likely in tort cases–they are unsuspecting victims
* In breach of K, contracting party “goes into transaction with their eyes open”
What must a foreign corporation do to be permitted to transact business in the state of Virginia?
They must qualify to transact business (i.e., do regular business in) VA
How does a foreign corporation qualify to transact business in VA?
Must file same information with SCC as required in AOI
* Additionally, must maintain a registered office and agent within the state
What are the consequences for a foreign business failing to qualify to transact business in VA?
(1) May get fined
(2) Can’t initiate a suit in VA courts (but may be sued and may defend suits in VA)
