Formation and Status of Corporations

Question 1

Corporations in the majority of states are now governed by what statute?

Answer 1

the Revised Model Business Corporation Act.

Question 2

A corporation formed in accordance with the law is a . . .

Answer 2

de jure corporation.

Question 3

If all corporate laws have not been followed in the creation of a corporation, what will result?

Answer 3

a de facto corporation.

Question 4

To create a de jure corporation, what must the incorporators do?

Answer 4

the incorporators must file articles of incorporation with the secretary of state.

Question 5

Traditionally, corporations have included what in their articles of incorporation?

Answer 5

a statement of business purpose.

Question 6

Where there is no statement of business purpose, RMBCA assumes what?

Answer 6

that the corporation is formed to conduct any lawful purpose and is allowed to undertake any act that is necessary or convenient for carrying on their business purpose.

Question 7

Can a corporation make charitable donations?

Answer 7

generally, yes.

Question 8

Ultra Vires Act

Answer 8

an act of the corporation which is outside its stated business purpose.

Question 9

Where there is no statement of business purpose, can a corporation take an ultra vires act?

Answer 9

yes, but only illegal acts are considered ultra vires acts where there is no statement of business purpose.

Question 10

Under common law, ultra vires acts are . . .

Answer 10

void and unenforceable

Question 11

Under RMBCA, ultra vires acts are . . .

Answer 11

generally enforceable.

Question 12

When can the ultra vires nature of a corporate act be raised in a RMBCA state?

Answer 12

where 1) a shareholder may sue the corporation to enjoin a proposed ultra vires act; 2) the corporation may sue an officer or director for damages for approving an ultra vires act; and 3) the state may bring an action to dissolve a corporation for committing an ultra vires act.

Question 13

When does a corporation come into being?

Answer 13

when the articles of incorporation are filed by the state.

Question 14

Following the filing of the articles of incorporation, what must the corporation do?

Answer 14

it must hold a meeting to elect directors, appoint officers, and adopt bylaws.

Question 15

What can bylaws contain?

Answer 15

any provision for managing the corporation that is not inconsistent with law.

Question 16

How can bylaws be repealed or amended?

Answer 16

by a majority vote of either the directors or shareholders.

Question 17

The corporate veil protects whom?

Answer 17

all shareholders, directors and officers.

Question 18

Does the corporate veil apply to de facto corporations or corporations by estoppel?

Answer 18

yes

Question 19

De Facto Corporation

Answer 19

a corporation with all the rights and powers of a de jure corporation but which remains subject to attack in a quo warranto proceeding by the state.

Question 20

For a de facto corporation to exist, there must have been:

Answer 20

1) a statute under which the entity could have validly incorporated; 2) colorable compliance with the statute and a good faith attempt to comply; and 3) the conduct of business in the corporate name and the exercise of corporate privileges.

Question 21

Under RMBCA, a person who purports to act on behalf of a corporation that the person knows does not actually exist is liable how?

Answer 21

jointly and severally for all liabilities created in so acting.

Question 22

Corporation by Estoppel

Answer 22

those who have dealt with a business entity as if it were a corporation will be estopped from denying its existence as a corporation.

Question 23

Does the doctrine of corporation by estoppel apply to tort cases?

Answer 23

no

Question 24

If the court finds no facts suggesting either a de facto corporation or a corporation by estoppel, what result?

Answer 24

the court will hold only those who are actively involved in the business as personally liable.

Question 25

Piercing the Corporate Veil

Answer 25

where a court disregards the corporate form and holds individuals personally liable for corporate obligations.

Question 26

What are the three situations in which the corporate veil will be pierced?

Answer 26

the corporate veil will be pierced where 1) the corporation ignores corporate formalities and some basic injustice results; 2) the corporation is inadequately capitalized at the time of its formation; or 3) where it is necessary to prevent fraud or an individual shareholder from using the entity to avoid his existing personal obligations.

Question 27

When the corporate veil is pierced, who is held liable?

Answer 27

only shareholders who are active in the operation of the business. Liability is joint and several.

Question 28

Can creditors pierce the corporate veil?

Answer 28

yes

Question 29

Will a court pierce the corporate veil at the request of a shareholder?

Answer 29

generally, no.