Organization of a Corporation Flashcards
Corporation Formation
To form a corporation, the incorporators must execute and deliver valid articles of incorporation to the secretary of state. The articles of incorporation must include the name of the corporation including the abbreviation of “corporation” or “incorporated,” the names and addresses of each incorporator, a registered agent and the street address of the registered office, and information regarding the corporation’s stock. The MBCA presumes a corporation is formed to conduct any lawful business and is allowed to undertake any necessary act for carrying out that business.
Organizational meeting
An organizational meeting must be held to adopt bylaws and appoint officers.
Activities beyond scope of business purpose
Activities beyond the scope of a narrowly stated business purpose are considered ultra vires, which under common law, was void and unenforceable. Under the MBCA, these acts are enforceable and the ultra vires nature of an act can only be raised by a shareholder seeking to enjoin the act, the corporation against the directors approving the act, or the state.
Internal Affairs Doctrine
Under the internal affairs doctrine, the internal affairs of a corporation are governed by the law of the state of incorporation.
De Facto
DEFENSE TO PERSONAL LIABILITY FOR SOMEONE UNAWARE THERE WAS NO DE JURE CORP:
If a corporation is not validly formed de jure, it may still be a validly formed corporation de facto or by estoppel. A de facto corporation requires a corporation statute in the jurisdiction, that the parties made a good faith and colorable attempt to comply with the statute, and the parties have been exercising corporate privileges.
Estoppel
A corporation may be formed by estoppel, under which the persons who have dealt with the entity as if it were a corporation will be estopped from denying the corporation’s existence. This prevents the corporation and those who have dealt with it from backing out of contractual obligations.
Promoters
A promoter is a person acting on behalf of an entity prior to incorporation, and they owe a fiduciary duty of fair disclosure and good faith to the corporation. A promoter who profits from selling to the corporation may be liable if all material facts were not disclosed.
Promoter Liability
A promoter will be personally liable on a contract with a third party and will only be released if there is an express or implied novation after the corporation has formed.
Corporate Liability on Promoter Contracts
A corporation will be liable on the promoters’ preincorporation contract if it expressly or impliedly adopts the contract. However, the corporation’s adoption alone does not relieve the promoter of liability.
