MO Corps: Corp Formation Flashcards
(26 cards)
Pre-Incorporation Ks: Promoters
Are persons acting on behalf of a corporation not yet formed. Promoter can be liable for K before corp is formed.
The corporation becomes liable on a promoter’s pre-incorporation K when the corporation ADOPTS the K by either:
- Express Board of Directors’ Resolution; OR
2. Implied adoption through KNOWLEDGE of K and ACCEPTANCE of benefits
The promoter remains liable on pre-incorporation Ks until there has been?
A novation! –Novation is an agreement between the promoter, corporation, and the other K party that the corporation will replace the promoter under the K
Who is liable if the promoter enters a K and the corporation is never formed?
Promoter alone is liable for the K.
Who is liable if the promoter enters an pre-incorporation K, and the corporation is formed, but merely adopts the K?
Both the corporation and the promoter are liable on K on the election of 3rd party.
Promoters are fiduciaries of each other and the corporation–which means?
Promoters cannot make a SECRET PROFIT on their dealings with the corporation.
If the promoter acquires property BEFORE becoming a promoter and resells the property to the corporation, is the profit recoverable to corporation?
The profit is recoverable to the corporation ONLY if sold for more than FMV
If the promoter acquires property AFTER becoming a promoter and resells the property to the corporation is the profit recoverable to corporation?
YES– ANY profit is recoverable by the corporation.
On January 10, P begins working as a promoter for the Vegan Corned-Beef Deli, Inc. On March 10, Paula buys a ton of vegan-corned beed for $10K. On april 3, P sells the vegan corned beef to corporation for $20K. May the corporation sue Paula?
Yes, the corp may disgorge all profits made by Paula on resale of the vegan-corned beef she acquired as a promoter even if the resale price was FMV
Subscribers
Persons or entities who make written offers to buy stock from a corporation not yet formed.
S signs a pre-incorporation subscription agreement, offering to buy 100 shares of C-Corp, a corporation not yet formed. One week later, S changes her mind. Can S revoke?
No. A pre-incorporation offer to buy stock in corporation not yet formed is irrevocable for 6 months
Incorporators
Merely sign and file the articles of incorporation with the state
Formation Reqs - De Jure Corp Status – The Articles must include:
- Authorized Shares
- Purpose
- Agent
- Incorporators
- Name
Authorized Shares
Is the max number of shares the corp is authorized to issue
Cant issue more without amending articles
Purpose
- General purpose and perpetual duration –valid and presumed in absence of specific purpose and limited duration
- Specific Statement of Purpose and Ultra Vires Rules
Can the articles of Bubba’s Bountiful Biscuits, Inc. indicate that the corporation’s purpose is to “engage in lawful activity in perpetuity”?
Yes. A ten purpose and perpetual duration are valid and will be presumed now in absence of specific purpose and limited duration
What if the articles of Bubba’s Bountiful Biscuits, Inc indicate that the corporation’s purpose is to “sell Southern-style sausage biscuits” and the corporation later sells T-shirts as well as the biscuits? Selling T-shirts is a ultra vires activity. What are the consequences?
- The state may enjoin the ultra-vires activity
2. The corporation can sue its own directors and officers for losses caused by the ultra-vires activity.
Agent
include the name and address of registered office (registered agent is the corporation’s official legal representative)
Incorporators
include the name and addresses
Name
Include the name of corporation–containing some indicia of corporate status
By- Laws
The corporation does NOT need to adopt by-laws. The board has the power to adopt and amend the by-laws unless the articles give the power to shareholders.
De Facto Corporation Doctrine
A business failing to achieve de jury corporate status nonetheless is treated as a corporation if the organizers have made a good faith, colorable attempt to comply with corporate formalities and have no knowledge of the lack of corporate status.
Legal Significance of Formation of Corporation
- Separate legal person
- Generally, SHs are not personally liable for debts of corporation. This is principle of limited liability which means that the SH is liable only to pay full consideration for her shares.
Piercing the Corporate Veil
GR: A SH is not liable for the debts of the corporation
Except to avoid fraud or unfairness
1. Alter EGo–failure to observe sufficient corporate formalities; or
2. Undercapitalization – failure to maintain sufficient funds to cover foreseeable liabilities.
