Pre-Incorporation

Question 1

What are Promoters?

Answer 1

Persons acting on behalf of unformed corp.

Question 2

Corporate Liability

Answer 2

For promoter’s Ks: when corp adopts by express adoption by Board of Directors (“BOD”) resolution or implied adoption (knowledge & accepts benefits).

Question 3

Promoter Liability

Answer 3

Until novation; solely liable if corp never formed.

Question 4

Duty of Promoters

Answer 4

Promoter is fiduciary, no secret profits.

If property acquired before formation & sold to corp
→ profit recoverable if sold for more than fair market value.

If property acquired after & sold to corp → any profit recoverable.

Question 5

Subscribers

Answer 5

Written agreement to buy stock from unformed corp.

Limitation: subscription agreement irrevocable for six months.

Question 6

Formation Requirements

Answer 6

A Pain
1) Authorized shares: (number, classes and series).

2) Purpose.
3) Agent & address of registered office.
4) Incorporators’ names & addresses.
5) Name of corp, with some indicia of corp status, e.g. inc or corp.

Question 7

What is a valid purpose?

Answer 7

General purpose w/ perpetual duration valid and presumed, unless specific statement of purpose or limited duration expressed.

If specific purpose, activities beyond scope are Ultra Vires activities. Ultra vires Ks are valid.

Shareholders (“SHs”) can seek injunction. Corp can sue responsible D&O for losses because of UV acts

Question 8

De Facto Corporation

Answer 8

Business that doesn’t fulfill filing formalities may nonetheless be treated as a corporation if organizers have made a good faith, colorable attempt to comply with the corporate formalities and have no knowledge of the lack of corp status.

Question 9

Legal Significance

Answer 9

Separate legal person; SHs not liable for debts of corp b/c of limited liability. SH is liable only for price of their stock.

Question 10

Piercing the Corporate Veil

Answer 10

Avoids fraud or unfairness and to render SHs liable to 3rd party victim.

Question 11

What is required to Pierce the Corporate Veil?

Answer 11

SHs treat corp as their alter ego by failing to observe sufficient corp formalities

OR corp is undercapitalized (fail to maintain sufficient funds for foreseeable liabilities).

Question 12

Piercing the Corporate Veil (Who is Liable?)

Answer 12

SHs active in operation of corp. or D&O. Courts more willing to pierce for tort victim than K claimant

Question 13

Foreign Corporations

Answer 13

Corp incorporated outside of state engaging in intrastate business must file certificate of authority, including all “A PAIN” info.