Setting Up a Corporation Flashcards
To form a corporation, you need what 3 things?
A person
A paper
An Act
With regard to the “person” requirement when setting up a corporation, what is that person called and what must they do?
They’re called an incorporator
They execute the articles and deliver them to the Secretary of State
How many incorporators does a company need in order to establish it? And does this person(s) need to be human or can they be another corporation?
One incorporator required
A person or an entity can serve as an incorporator
Does the incorporator need to be a citizen of the state in which they are incorporating the new entity?
No
With regard to the “paper” (Articles) requirement of setting up a corporation, what information must the articles contain?
Name of the company
The corporation’s name must include “corporation,” “company,” “incorporated,” or “Limited” in its name
State the registered agent
Registered office address (in same state as incorporation)
Information about authorised stock
If the corporation has different classes of stock, what do many states require the articles to state?
State the different classes of stock
Number of shares per class
Voting rights and preferences attached to such stock
At what point is the corporation said to be “formed?”
The incorporator must send the articles and the fee to the Sec of State. Once the Secretary of State ACCEPTS FILING, the corporation is formed.
What is a de jure corporation?
A company that’s been formed in accordance with applicable laws
After a de jure corporation is formed, what “act” must take place?
An organisational meeting
Who runs the first organisation meeting?
If directors named in the articles, they run it. If not directors, the incorporator runs the meeting during which they elect the directors.
The person running the organisation meeting must “complete the organisation of the corporation.” This mean what?
Appoint officers
AND
Adopt the initial Bylaws
Are Bylaws filed with the State?
No, they are internal
If Bylaws and articles conflict, which prevails?
Articles
Who can amend, appeal or adopt new Bylaws?
Shareholders
OR
The Board
If a company only does business in State B, but they were incorporated the in State Y, which state laws govern?
Always the state of incorporation (State Y)
What is a B Corp?
A Benefit Corporation, formed for profit, but also to purpose a broader social policy cause.
How will you know whether a company is a B Corp?
The articles will state it
How does a B Corp account for whether they pursued a broader social purpose?
Must file annual benefit reports assessing how it pursues its social mission
What is the benefit of qualifying as an S Corp and what are the 4 requirements?
S Corps do not pay income yes at the corporate level.
Requirements are:
- No more than 100 SH
- All SH are U.S. citizens/resident
- One class of stock
- Not publicly traded
What happens if the incorporator fails to correctly form a corporation?
They may form a partnership and create individual liability
If the incorporators fails to form the corporation, in which two circumstances will they avoid creating a partnership?
De Facto Corporation
Corporation by Estoppel
What two things should you note to the examiner when discussing whether a person may be able to claim formation of a De Facto Corporation or a Corporation by Estoppel?
- A person asserting such doctrines must be unaware of the failure to form a de jure corporation
- The Doctrines are abolished in many states
What 4 factors do you need to rely on the doctrine of De Facto Corporation?
- Need a relevant corporation statute
- Parties made a good faith, colourable attempt to comply with it
- Some exercise of corporate privilege
- COURT MUST UPHOLD the De Facto Corporation—it’s not automatic
When does a Corporation by Estoppel apply?
Only in contract cases
What is the effect of a Corporation by Estoppel
If prevents anyone who has been dealing with the corporation as though it existed from denying its existence (applies to both incorporators and third parties dealing with the company).
Is a corporation liable for a pre-incorporation contract?
Yes, but only if it ADOPTS THE CONTRACT.
Therefore liability does not automatically attach.
How can a Corporation “adopt” a pre-incorporation contract?
Express adoption (by the Board)
Implied adoption (corporation accepts the benefit of the contract)
For pre-incorporation contracts, when does the contract promoter cease to be liable?
At three parties must agree to NOVATION
If the corporation agrees to adopt the contract, does that mean the promoter is no longer liable for the pre-incorporation contract?
No, stop liable because you need formal NOVATION between all three parties
What is the rule regarding foreign corporations?
Foreign corporations TRANSACTING business in the state MUST QUALIFY and pay PRESCRIBED FEES.
Who is a “foreign” corporation?
Any company outside of its state of incorporation
For the purpose of determining the requirements for a foreign company, what does “transacting business” mean?
Means the regular course of INTRASTATE (not inter-State) business activity.
With regard to a foreign company “transacting business” include owning property in the foreign state or conducting occasional transactions?
No, because it’s not regular business activity.
What does it mean to “qualify” in the state?
Foreign corporation must get a certificate of authority from the Sec of State. They do this by providing the Sec of State with information from their articles, which proves good standing in their home state.
Does the foreign company need any presence in the foreign state to “qualify?”
Yes, they must appoint a registered agent and maintain a registered office in the state.
What happens if a foreign corporation transacts without qualifying?
Could be liable to:
- Civil fine
AND
- The foreign corporation cannot a claim in the state
Broadly, what are the requirements for “qualifying” as a foreign corporation in a certain state?
Prove “good standing” to Sec of State
Obtain certificate of authority from Sec of State
Pay prescribed fee
Appoint registered agent
Maintain registered office in the state.
