Formation Flashcards
the internal affairs of a corporation are governed by?
aka internal affairs doctrine
the state of incorporation
what does it mean when a corporation gets entity status
it is considered a person meaning it can sue, be sued, own property, invest
B corp (benefit corporation)
formed for-profit but also to pursue some benefit to a broader social policy cause
- articles must say it is a b corp
- must file annual benefit report assessing how it pursued it stated social policy mission
s corp requirements
- do not pay income tax at entity level (c-corps do)
- all SH must be humans; no entities
- must be US citizens
- only one type of stock and is not publicly traded
- max SH is 100 ppl
what protections when there is defective corporation
defective corporation means that incorporators will be personally liable
However, the incorporators can offer the following defenses to escape liability
NOTE: Anyone asserting the two defenses below must be UNAWARE of the failure to form a de jure corp (which is a corp formed by lawful standards)
- de facto corp
- corp by estoppel
list (3)
de facto corp
(corp in fact)
For DF corp to exist, need to meet all three
- relevant incorporation statute
- parties made a good faith, colorable attempt to comply with the statute
- IOW: parties came close to forming a corp
- Some exercise of corporate privilege - parties acting though they thought there was a corporation
REMEMBER: can only raise DF as a defense for liability if party was unaware of defective corporation, otherwise, will be jointly and severally liable.
SO, the corporation will be treated as if it exists for all _other_ purposes. Except in a quo warranto proceeding where state may move to seek dissolution.
BUT corporation can still be liable to the state through a quo warranto proceeding
Corp by estoppel
and what cases does it apply to
if ppl. have dealt with corp as if it was a properly formed corp, party and corporation are estopped from denying the corporation’s existence even though it was defective corporation
APPLIES ONLY IN CONTRACT CASES - prevents
- everyone backing out of the K on the argument that it was defectively incorporated (might be able to use other defenses)
- prevents the corporation from avoiding liability on the argument that it was defectively incorporated
PROTECTION:** corporation will not be **personally liable** on the K that was entered into when the corporation was defective. **HOWEVER,** it **CAN** be **personally liable** to a **tort victim.
Ex: B enters into a K with F -Corp. Everyone thinks it’s a corporation. Turns out it is not. Now, B and corporation are both estopped from denying that it is a corporation and the K will be enforceable for both B and F-Corp.
if courts find no DF and no corp by estoppel then who is liable and how
active business members liable and liable j+s
defacto and estoppel are abolished in most states SO what does that mean for your essays?
you should still do the analysis, recognizing that they are abolished BUT say that if they arent, here is how the ct would approach the issue
who is a promoter
someone acting on behalf of the corporation before it is formed
promoter duty to corp
fair disclosure + good faith
corporation liability for promoter’s contracts with 3rd parties
remember corp has not been formed yet
so
corporation is NOT BOUND on Ks that promoter makes
liable only if it adopts the promoters K through express or implied adoption
express and implied adoption of a pre-incorporated corp
express: board takes action in adopting
implied: board accepts the benefits of the K
promoter liability
j+s liable for obligations incurred on K formed
and continues even after corp is formed and corp adopts/benefits from the promoters actions
how can a promoter be released from liability
through novation
all parties (corp, promoter + 3rd party agree to release promoter from liability and substitute corporation for the promoter in the K)
