MO Corps: Corp Formation

Question 1

Pre-Incorporation Ks: Promoters

Answer 1

Are persons acting on behalf of a corporation not yet formed. Promoter can be liable for K before corp is formed.

Question 2

The corporation becomes liable on a promoter’s pre-incorporation K when the corporation ADOPTS the K by either:

Answer 2

1. Express Board of Directors’ Resolution; OR

2. Implied adoption through KNOWLEDGE of K and ACCEPTANCE of benefits

Question 3

The promoter remains liable on pre-incorporation Ks until there has been?

Answer 3

A novation! –Novation is an agreement between the promoter, corporation, and the other K party that the corporation will replace the promoter under the K

Question 4

Who is liable if the promoter enters a K and the corporation is never formed?

Answer 4

Promoter alone is liable for the K.

Question 5

Who is liable if the promoter enters an pre-incorporation K, and the corporation is formed, but merely adopts the K?

Answer 5

Both the corporation and the promoter are liable on K on the election of 3rd party.

Question 6

Promoters are fiduciaries of each other and the corporation–which means?

Answer 6

Promoters cannot make a SECRET PROFIT on their dealings with the corporation.

Question 7

If the promoter acquires property BEFORE becoming a promoter and resells the property to the corporation, is the profit recoverable to corporation?

Answer 7

The profit is recoverable to the corporation ONLY if sold for more than FMV

Question 8

If the promoter acquires property AFTER becoming a promoter and resells the property to the corporation is the profit recoverable to corporation?

Answer 8

YES– ANY profit is recoverable by the corporation.

Question 9

On January 10, P begins working as a promoter for the Vegan Corned-Beef Deli, Inc. On March 10, Paula buys a ton of vegan-corned beed for $10K. On april 3, P sells the vegan corned beef to corporation for $20K. May the corporation sue Paula?

Answer 9

Yes, the corp may disgorge all profits made by Paula on resale of the vegan-corned beef she acquired as a promoter even if the resale price was FMV

Question 10

Subscribers

Answer 10

Persons or entities who make written offers to buy stock from a corporation not yet formed.

Question 11

S signs a pre-incorporation subscription agreement, offering to buy 100 shares of C-Corp, a corporation not yet formed. One week later, S changes her mind. Can S revoke?

Answer 11

No. A pre-incorporation offer to buy stock in corporation not yet formed is irrevocable for 6 months

Question 12

Incorporators

Answer 12

Merely sign and file the articles of incorporation with the state

Question 13

Formation Reqs - De Jure Corp Status – The Articles must include:

Answer 13

1. Authorized Shares
2. Purpose
3. Agent
4. Incorporators
5. Name

Question 14

Authorized Shares

Answer 14

Is the max number of shares the corp is authorized to issue

Cant issue more without amending articles

Question 15

Purpose

Answer 15

1. General purpose and perpetual duration –valid and presumed in absence of specific purpose and limited duration
2. Specific Statement of Purpose and Ultra Vires Rules

Question 16

Can the articles of Bubba’s Bountiful Biscuits, Inc. indicate that the corporation’s purpose is to “engage in lawful activity in perpetuity”?

Answer 16

Yes. A ten purpose and perpetual duration are valid and will be presumed now in absence of specific purpose and limited duration

Question 17

What if the articles of Bubba’s Bountiful Biscuits, Inc indicate that the corporation’s purpose is to “sell Southern-style sausage biscuits” and the corporation later sells T-shirts as well as the biscuits? Selling T-shirts is a ultra vires activity. What are the consequences?

Answer 17

1. The state may enjoin the ultra-vires activity

2. The corporation can sue its own directors and officers for losses caused by the ultra-vires activity.

Question 18

Agent

Answer 18

include the name and address of registered office (registered agent is the corporation’s official legal representative)

Question 19

Incorporators

Answer 19

include the name and addresses

Question 20

Name

Answer 20

Include the name of corporation–containing some indicia of corporate status

Question 21

By- Laws

Answer 21

The corporation does NOT need to adopt by-laws. The board has the power to adopt and amend the by-laws unless the articles give the power to shareholders.

Question 22

De Facto Corporation Doctrine

Answer 22

A business failing to achieve de jury corporate status nonetheless is treated as a corporation if the organizers have made a good faith, colorable attempt to comply with corporate formalities and have no knowledge of the lack of corporate status.

Question 23

Legal Significance of Formation of Corporation

Answer 23

1. Separate legal person
2. Generally, SHs are not personally liable for debts of corporation. This is principle of limited liability which means that the SH is liable only to pay full consideration for her shares.

Question 24

Piercing the Corporate Veil

Answer 24

GR: A SH is not liable for the debts of the corporation
Except to avoid fraud or unfairness
1. Alter EGo–failure to observe sufficient corporate formalities; or
2. Undercapitalization – failure to maintain sufficient funds to cover foreseeable liabilities.

Question 25

X is the SH and CEO of Glowco, Inc. a corporation that hauled and disposes of nuclear waste. Glowco does not carry insurance. Glowco has an initial capitalization of $1000. X commingles personal and corporate funds. V is injured when one of Glowco’s trucks melts down. Can V sue X?

Answer 25

As a rule, SH are not liable for corp obligations. Except the court will pierce corp veil to avoid fraud or unfairness. In this case, X did fail to observe sufficient corporate formalities by commingling funds. Alternatively, Glowco is also under capitalized because it operates dangerous business, has no insurance and is under capitalized. Therefore, court will pierce the veil and make X liable.

Question 26

Foreign Corporations– that wish to engage in regular intrastate business must

Answer 26

qualify by filing a certificate of authority with SoS that includes: same information required by Articles.