Incorporation and Governance

Question 1

Articles of Inc.: 5 Requirements in VA

Answer 1

1. Must be signed by at least one incorporator and filed with the State Corporation Commission of VA
2. Must include the corporate name, ( which must include, Corporation, Corp., Company, Co., Incorporated, Inc., Limited, Ltd.)
3. The location of its principle office in VA
4. The number of shares C is authorized to issue,
5. The identity of a resident agent in VA.

Question 2

What may the Article of Inc. Include?

Answer 2

May include a statement of C’s purpose, a broad statement is acceptable. (ie like “to engage in any lawful activity”)

May enumerate C’s power, as broadly as necessary

Question 3

What is an Ultra Vires act?

Answer 3

in Latin: “beyond the powers”,

If the articles of inc. state a narrow business purpose and the firm conducts actives outside this stated purpose, the acts will be deemed ultra vires.

Question 3

Can a 3rd party who contracts with the C for an ultra vires act assert that the C has acted outside of its purpose to escape liability?

Answer 3

No

Question 4

What three entities can challenge an Ultra vires act?

Answer 4

A shareholder can sue to enjoin the C from conducting an ultra vires act.

The C can take action against a director/officer who engages in an UV act.

The State Corp. Commish of Va can initiate a proceeding agains the C to enjoin the UV act.

Question 5

What is a “De jure” Corporation

Answer 5

In latin, “by right” “rightful”, When all statutory requirements have been met for incorporation the C is deemed de jure. After that date, the C is liable for the C’s activities.

Question 6

Amendment of Articles of Inc, if no stock has been issued?

Answer 6

If no stock has been issued, the Board may amend OR if the initial board of directors has not been selected, the promoter may amend.

Question 7

Amendment of Article of Inc, if stock has been issued?

Answer 7

If stock has been issued then amendment usually requires a 3 step process:

1. The Board of D must approve the amendment.
2. The BD will submit the amendment to the shareholders for consideration.
   (the shareholders must be given between 25-60 days for the vote, and a copy of the amendment.
3. Shareholders must vote to approve.
   (Default rule requires 2/3 approval, but articles can set any standard not less than a majority of the shares. If multiple classes of stock, then each class impacted by the amendment will hold a separate vote).

After proper approval is obtained, for either stock or no stock issued, the amended articles are delivered to the state corp commission.

Question 8

What are the consequences of defective incorporation? What if they make a good faith effort?

Answer 8

If lack of good faith: a person who conducts business as a C without attempting to comply with the incorporation requirements may be guilty of a class 1 misdemeanor.

If good faith effort:
two ways to escape personal liability:

1. De facto C- the owner must make a a good-faith effort to comply with the incorporation req. and operate C without knowing the req. were not met.
   (VA does not recognize de facto C’s)
2. Corporation by estoppel- a person dealing with an entry as if it were a C is estopped from denying its existence and seeking personal liability. (VA appears to recognize this doctrine).