Promoters & Incorporation Flashcards
General
Corporation Definition - separate entity that can sue and be sued, enter into contracts, and can last forever
Sharholder Liability - limited liabilty; not personally liable for debts of entity
Pre-Incorporation Transactions - Promoters
Definition - person who persuades people to invest in a corporation that she intends to form
Liability - generally personaly liable for any contracts entered into before the corp exists
After Formation - generally libable after corporation has been formed unless the corporation has an expressly released the promoter from responsibility (i.e.g, novation)
Indemnificaiton - can limit liability though an agreement with an indemnification clause
Exception - promoter not liable for pre-incorporation contract if:
- contract specifically states that the promoter is acting only on behalf of the future corporation and assumes no personal liability
- the corporation is then formed properly
- the corporation then adopts that contract
Pre-Incorporation Transactions - Corporation’s Liability
Before Corp. Exists - corp not liable for contracts entered into by prommoter because no fiduciary relationship exists between the two
Adoption - can be liable where the corp adopts the contract.
Adoption Rule - when corporation accepts the benefits of the transaction or gives an express or implied acceptence of liability for the debt
Pre-Incorporation Transactions - Incorporators
Definition - person who signs and files the articles of incorporation
Liability - not liable for pre-incorporation contracts
Incorporation
Key Document - Article-s of Incoporporation filed with Secretary of State with fees paid
Article of Incorporation Contents:
- incorporator name and address
- corproations name and address
- magic word (e.g., inc, corp, co, etc.)
- designated agent in ohio for service of process
- the number of shares the corporation has it is authorized to issue
- if the copr has ny initial stated capital
- purpose not required
Bylaws
Required? - no but nearly every corp has them
Contents - working rules for the coproration
Defective Corporations
De Jure Corp - when proper requirements are ment for forming the corp, it is called this
Liable if Defective Application - if requirements not met but does business as though it had complied, then either incorporator or corporation may be laible
Oblgiations After“Formation” - if good faith effort made to incorporate, may be liable for obligations entered into after corporation was supposedly formed
No Good Faith - then personally liable for obligations incurred in the name of the would be corp
Yes Good Faith - then corp may be treated as if it were a de jure corp and not personally liable if either:
- Defacto Corp - owner has made a colorable good faith effort to compy with incorp requirements of state and operates the business as a corp without knowing that the requirements had not been met.
- Corp by Estoppel - person who deals with entity as if it were a corp is estopped from denying its existence and thereby prevented from seeking personal liablity of the business owner
Ultra Vires Acts
Where Ultera Vires Action Permitted -
- shareholder filing suit to enjoin corp from acting outside stated purpose
- the corporation takes action against a director, officer, or employee of the corp who engages in such action
- state initiating a proceedings against the corp