Forming a Corporation

Question 1

Formation Terminology

Answer 1

• corporations are created by complying w/ state law
• corp formed in accordance w/ law is a “de jure” corp
• if all corporate laws have not been followed, a de facto corporation might result or a corporation might be recognized through estoppel

Question 2

What is required to create a de jure corp?

Answer 2

• a person, a paper, and an act
• person = incorporator
• paper = articles of incorporation
• act = filing

Question 3

Incorporators

Answer 3

• one or more persons who undertake to form a corporation
• must comply w/ all applicable statutory requirements to form the corporation
  -> must execute + deliver article of incorporation to the secretary of state
• can be a person or an entity
• don’t need to be a citizen of the state of incorporation

Question 4

Articles of Incorporation - Required Contents

Answer 4

• name of the corporation (needs to include corporation, company, incorporated, limited or an abbreviation)
• name and address of each incorporator
• a registered agent + the street address of the registered office (must be in the state, + the agent is legal rep for service of process)
• info re company’s stock

Question 5

Stock Info Required in Articles of Incorporation

Answer 5

• need details about the corporation’s authorized stock (max number of shares the corporation can sell)
• if the company has different classes of stock or series w/in a class of stock, many states require that the articles state the number of shares per class, provide a distinguishing designation for each class, and describe the voting rights, preferences, + limitations of each class of stock

Question 6

Optional Contents

Answer 6

• articles may include any other provision re operation of the corporation that’s not inconsistent with law
• may also require that any internal corporate claims be brought exclusively at a court w/in the corporation’s state of incorporation

Question 7

Articles of Incorporation - Business Purposes

Answer 7

• traditionally, articles of incorporation have included a statement of business purposes in their articles
• absent such a statement, MBCA presumes that a corp is formed to conduct any lawful business + is allowed to undertake any act that is necessary or convenient for carrying on their business purpose, including making charitable donations + lending money to employees, officers, + directors

Question 8

Corporate Purposes - Exam Tip

Answer 8

• under modern corporation statutes, a corporation is given the power to do all things necessary or convenient to effects its purposes
• most modern stats also provide that a corporation may be formed for any lawful purpose
• together, these provisions provide authority for a corp to do almost anything that is rationally related to a business purpose -> unless an exam q restricts a corporation’s purposes, should usually find corporate acts to be within the corp’s powers

Question 9

Ultra Vires Acts

Answer 9

• if a corporation includes a narrow business purpose in its articles, it may not undertake activities unrelated to achieving the stated business purpose
• activities beyond the scope of the stated business purposes are said to be ultra vires
• under common law, ultra vires acts were void + unenforceable
• under the Revised Model Business Corporation Act (MBCA), ultra vires acts are generally enforceable, = ultra vires nature of the act can be raised in only 3 situations

Question 10

Situations in Which Ultra Vires Nature of Acts Can be Raised Under MBCA

Answer 10

• shareholder may sue corp to enjoin a proposed ultra vires act
• corporation may sue an officer or director for damages for approving an ultra vires act AND
• the state may bring an action to dissolve a corporation for committing an ultra vires act

Question 11

Ultra Vires Acts - Exam Tip

Answer 11

• ultra vires defense VERY limited under modern statutes -> shouldn’t allow a corporation to get out of a contract merely b/c it’s outside the scope of the corporation’s stated purposes

Question 12

Filing

Answer 12

• marks the beginning of the corporation’s existence
• to complete formation, the incorporators have notarized articles delivered to the secretary of state + pay any required fees
• in other words, corporate existence begins upon this filing by the state -> conclusive proof of corporate existence

Question 13

Organizational Meeting

Answer 13

• if initial directors were named in the articles, the board of directors hold the organizational meeting
• purpose of the meeting is to “complete the organization of the corporation” -> means 1) adopt initial bylaws and 2) appoint officers

Question 14

Bylaws

Answer 14

• internal doc
• corp’s operating manual
• may contain any provision for managing the corporation that is not inconsistent with the articles of incorporation or the law