Introduction and Formation

Question 1

Promoter

Answer 1

• Persuade to invest in a corp.
• Only a fiduciary no agency
• Personally liable for Ks signed b4 corp. exists; liability remain after formation until novation (corp. makes responsible under K and 3rd party agrees to only look to corp. for liability)

Question 2

Corporation’s Liability

Answer 2

-Not liable for preincorp. transaction
EXCEPT
expressly affirm preincorp. K or adopt benefits of preincorp K

Question 3

Incorporator

Answer 3

• signs/files articles of incorporation

- no liability for actions as incorporator

Question 4

Incorporation Procedure

Answer 4

-file “charter (articles)” with SDAT

Question 5

Articles of Incorporation

Answer 5

• incorporator’s name, address and statement;
• corp name, address of principal place (“magic words”)
• corporate purpose
• resident agent info (in MD, accepts service of process)
• # of shares of stock corporation is allowed to issue
• classes of share
• names/number of directors
• corporation’s powers
• limit on corporation’s duration

Question 6

Ultra Vires Acts

Answer 6

• corp. acts outside of its purpose, transaction can be challenged
• 3 ppl to challenge: stockholders (to enjoin), corporation (sue directors, officers, or EEs), state (to enjoin)

Question 7

Changes to Articles of Incorporation

Answer 7

• mistakes: articles of correction
• changes: articles of amendment
• who can amend: company issued stock->stockholders company not issued stock ->board of directors or incorporator

Question 8

Effect of Incorporation

Answer 8

• all statutory requirements met, de jure corp.
• good-faith promoter rely on two doctrines to avoid liability:
• De Facto Corporation: owner made good faith effort to incorporate, corp. has exercised its powers, and owner doesn’t know incorporation was defective.
• Corporation by Estoppel: 3rd party deals with corp. as if formed and valid party, owner made good faith to incorporate, efforts failed. Only applies to contractual relationship.

Question 9

Governance Documents

Answer 9

• Articles of incorporation
• Bylaws: organizational governing doc. day to day operations, adopted by the board at the initial organizational meeting, stockholders amend (board can amend if charter/bylaws allow)