Incorporation and Governance

Question 1

What must be done with the Articles of Incorporation (5) ?

Answer 1

1. Must be filed with the state
2. Must include the corporate name
3. Must include the location of its principal office in VA
4. Must include the # of shares the corp is authorized to issue
5. Must identify the resident agent in VA

Question 2

What may be included in the Articles of incorporation (2) ?

Answer 2

1. May include a statement of C’s purpose (a broad statement of such purpose “to engage in any lawful activity” is acceptable)
2. It may enumerate C’s powers as broadly as necessary

Question 3

What happens after Articles is filed ?

Answer 3

1. The legal existence of the corporation begins; and
2. The issuance of a certificate of incorporation by the commission

However, the legal existence can begin on a later date specified in the articles (not more than 15 days after filing)

Question 4

What is an Ultra Vires Action ?

Answer 4

An act when a corporation has stated an narrow business purpose in its articles and has subsequently engaged in activities outside that stated purpose.

Question 5

Can a 3rd party escape liability for a transaction that is ultra vires ?

Answer 5

No, generally a third party cannot escape liability for a transaction with C that is an ultra vires corporate act

Question 6

Who can challenge an ultra vires act ?

Answer 6

1. a Shareholder
2. The corporation
3. Va state corporation commission

In a shareholder action, the court may enjoin or set aside the corporations ultra vires action and award damages

Question 7

Amending the Articles of incorporation when C has no stock

Answer 7

If the corporation has no stock, the board of directors may amend the articles

Question 8

Amending the articles if C has stock

Answer 8

1. The board must adopt the amendment; and
2. Submit it to shareholders with adequate notice and obtain shareholder approval

Question 9

De Jure Corporations

Answer 9

When all statutory requirements are satisfied, the corporation is liable for its activities

Question 10

Defective incorporation

Answer 10

1. Lack of good faith
2. Good faith effort

Question 11

Defective corporation by lack of good faith

Answer 11

A person who conducts business as a corporation without attempting to comply with incorporation requirements may be guilty of a class 1 misdemeanor

Question 12

Defective corporation with good faith effort

Answer 12

There are two ways to escape personal liability
1. Defacto Corporation- NOT RECONGIZED IN VA
2. Corporation by estoppel

Question 13

What is a defacto corporation ?

Answer 13

The owner must make a good faith effort to comply with the incorporation requirements and operate C without knowing the requirements were not met (VA DOES NOT recognize THIS)

Question 14

Corporation by estoppel

Answer 14

A person who deals with an entity as if it were a corporation is estopped from denying its existence and seeking personal liability.

Question 15

What are bylaws ?

Answer 15

Bylaws are provisions for management of C’s business that are not inconsistent with the articles of incorporation

Question 16

When is an organizational meeting held ?

Answer 16

1. For the appointment of officers,
2. The adoption of bylaws
3. The approval of contracts

If held by the incorporators, election of the board also takes place

Question 17

Can the corporation ratify a defective corporate action ?

Answer 17

Yes, a Corporation may ratify any void or voidable corporate action OR over-issuance of shares.

Question 18

How does the corporation ratify a defective corporate action ?

Answer 18

1. The board must adopt a resolution approving the ratification; and
2. If required, secure shareholder approval