Flashcards in Fact Pattern 1: Setting Up A Business as a Corporation Deck (20):
What are required to set up a corporation?
A person, a paper and an act.
What is the person part to set up a corporation?
The person in the incorporator. There must be one or more, it can be a person or an entity and it executes the articles of incorporation and delivers them to the secretary of state.
What is the paper part necessary to set up a corproation?
The articles of incorporation must be filed with the secretary of state. It requires:
1. Name of the corporation including one of the following words: corporation, company, incorporated, or limited.
2. Name and address of each incorporator;
3. Registered agent and street address of registered office;
4. Information regarding stock.
What is the act necessary to set up a corporation?
The incorporators have notarized the articles and delivered them to the secretary of state and payed the required fees.
Once all three requirements (Person, Papers and Act) are fulfilled for the formation of a corporation, what is the corporation known as?
A de jure corporation.
What occurs at the organizational meetings if:
a. initial directors named in the articles?
b. Intial directors not named in the articles?
a. The named directors create the bylaws.
b. The incorporators hold the organizational meetings, where they elect the directors. Then the directors create the bylaws.
What are the bylaws?
An internal document which is comprised of an operating manual with record dates, methods of notice, etc.
Who can amend the bylaws and are the bylaws filed with the state?
No, the bylaws are not filed with the state because they are internal documents. They are amended by the board or shareholders.
What is the consequence of a corporation being a legal person?
It can sue and be sued, hold property, be a partner in a partnership, invest in other companies or commodities.
What does it mean that a corporation is "double taxed"?
The corporation pays income tax on its profits. Additionally, shareholders are taxed on distributions ot them.
What are and are not the shareholders of a corporation liable for with regards to the corporation?
Shareholders are not responsible for the corporations debts, torts, or contract breaches. However, they are liable for the price of their stock.
What is required for the defense of a De Facto corporation?
A defacto corporation exists when the proprietors thorugh they had formed a corporation, but this was in error. However, if the following is fulfilled, the business is treated as a corporation for all purposes except in an action by the state. The requirements are:
1. There is a relevant incorporation statute;
2. The parties made a good faith, colorable attempt to comply with it; and
3. There has been some exercise of corporate privileges.
What is required for the defense of corporation by estoppel?
Someone who treats a business as a corporation may be estopped from denying it is a corporation. Will only apply in contract claims, not tort claims.
Requires both parties to believe a corporation was formed, then they will be denied the ability to claim none existed.
Who is a promoter?
Someone who is acting on behalf of a corporation not yet formed. She might enter a contract on behalf of a corporation not yet formed.
In a promoter created contract, is the corporation liable for the contracts entered into?
The corporation is liable on a preincorporation contract only if it adopts the contract. The adoption of the contract can happen expressly or impliedly.
Once the corporation is formed, does the promoter remain liable on the contracts?
Unless the contract specifically states otherwise, the promoter is liable on the pre-incorporation contract until the corporation shifts liablity via a novation.
What is a novation?
An agreement of the promoter, the corporation, and the other contracting party that the corporation replaces the promoter under the contract.
What is a foreign corporation?
Any corporation that is not incorporated within the state.
Foreign companies transacting business within the state must qualify and pay prescribed fees. What is considered "transacting business?"
Transacting business means the regular course of intrastate business activity. It does not include occasional or sporadic activity in this state, and not simply owning property here.