Setting up a Corporation

Question 1

How is a corporation formed?

Answer 1

A corporation forms when the incorporporator files the corporation’s notarized articles of incorporation with the Secretary of State’s office.

Question 2

Organizational Meeting

Answer 2

The organizational meeting is the initial meeting held by the incorporators or the initial directors named in the articles of incorporation. The incorporators or directors must complete the organization of the corporation by:

1. Appointing officers;
2. Adopting initial bylaws.

Question 3

Internal Affairs Rule

Answer 3

Under the internal affairs rule, the internal affairs of a corporation are governed by the laws of the state of incorporation.

Question 4

Entity Status

Answer 4

A corporation is a legal person that can sue, be sued, hold property, serve as a partner in a partership, invest in other companies, etc.

Question 5

B Corporation

Answer 5

A B Corp is a formed for profit and to pursue a benefit or social cause.

Question 6

S Corporation

Answer 6

An S corporation is a corporation that does not pay tax at the corporate level. Instead, taxes are paid at the shareholder level. To be an S corporation, the corporation must . . .

1. Have no more than 100 shareholders. . .
2. Who are human and U.S. citizens. . .
3. Have no more than 1 class of stock. . .
4. That is not publically traded.

Question 7

What is a sharholder’s liability for a corporation’s obligations in contract and tort?

Answer 7

None! Shareholders enjoy limited liability and are therefore liable only to pay for their stock.

Question 8

What is the affect of a pre-incorporation contract?

Answer 8

If a promoter contracts on behalf of a corporation that has not yet formed, the corporation is liable only if the board adopts the contract. Adoption may be express or implied.

The promoter remains liable on the contract until there is a novation. However, a promoter will not be liable if the contract expressly provides that the promoter will not be bound.

⇒ Notice how the promoter remains liable even if the board adopts contract.