Organization of a Corporation

Question 1

Person

Answer 1

Corporation is a person, entitled to due process, equal protection, and A/C privilege

NO 5th AMENDMENT PRIVILEGE AGAINST SELF INCRIMINATION HOWEVER

Question 2

De Jure Corporation (Formation of a corporation)

Answer 2

Corporation that complies with all statutory requirements

Must have one or more incorporators; Articles of incorporation; and file AOI with the Secretary of State and pay required fees

Once accepted by Secretary of State, have a de jure corporation

Question 3

Articles of Incorporation requirements

Answer 3

Requirements: (1) Corporate name (includes Corp., company, incorporated, or limited, or an abbreviation); (2) name and address of EACH incorporator; (3) name and address of EACH initial director; (4) name of registered agent and address of the registered office; (5) generally a statement of purpose; and (6) number of shares authorized to issue

Question 4

Statement of Purpose in AOI

Answer 4

Can be very basic. Enough to indicate that corporation’s purpose is to engage in all lawful activity

If no statement included, presumed to include statement that it is to conduct any lawful business and is allowed to undertake any act that is necessary or convenient for carrying on its business purpose

Question 5

Ultra Vires

Answer 5

When articles include a narrow business purpose, activities beyond the scope of this narrow purpose are considered “ultra vires”

Common law: voided all ultra vires acts

Today: (1) SH may sue the corp to enjoin a proposed UV act; (2) CORP may sue an officer or director for damages for approving an UV act; and (3) the state may bring an action to dissolve a corp for committing UV acts

Today: also, UV K are valid as to third parties. Are not voided merely because it is UV

Question 6

Duration of Corp

Answer 6

Can include duration. If none included, presumed perpetual existence

Question 7

Authorized Stock

Answer 7

Maximum number of shares the corporation can sell

Question 8

Issued Stock

Answer 8

Number of shares the corporation actual sells

Question 9

Outstanding stock

Answer 9

shares that have been issued and not reacquired

Question 10

Capital Structure requirement for Articles

Answer 10

Must include (1) authorized stock; (2) number of shares per class; and (3) information on voting rights and preferences of each class

Question 11

Internal Affairs Doctrine

Answer 11

Internal affairs of a corporation are governed by the law of the state in which the corporation is formed

e.g. duties of officers, shareholders, and directors

Question 12

C Corporation

Answer 12

Taxed as an entity distinct from its owners, thus double taxation.

Corp taxes on profits; then SHs taxed on distirbutions

Question 13

S Corporation

Answer 13

Pass through taxation–profits and losses flow through the entity to the owners

Must have (1) no more than 100 SHs, all of whom are HUMAN and US Citizens or Residents; (2) only one class of stock; and (3) not publicly traded

Question 14

Limited Liability

Answer 14

SHs are NOT personally liable for obligations of the corp. Only lose the amount they invested in the company

Directors and officers are NOT personally liable for obligations of the corp

Question 15

De Facto Corporation

Answer 15

If found, has all rights and powers of a de jure corporation

Requirements: (1) There is a relevant incorporation statute (always is); (2) the parties made a good faith, COLORABLE ATTEMPT to comply with the statute; and (3) There was some exercise of corporate privileges (acted like there was a corporation)

NOTE: person asserting the doctrine MUST BE UNAWARE of the failure to form a de jure corporation

Question 16

Quo Warranto

Answer 16

An action by the state. De Facto corporations are protected EXCEPT in quo warranto proceedings

Question 17

Corporation by Estoppel

Answer 17

Persons who have dealt with the entity as if it were a corporation will be ESTOPPED from denying the corporation’s existence

Also prevents improperly formed crop from avoiding liability by saying it was not properly formed

Applies ONLY TO CONTRACT CASES, NOT TORT CASES

Question 18

Bylaws

Answer 18

corps are NOT required to have bylaws, but usually have them to control internal governance

Not filed with the state, thus NOT a public file. Only articles are publicly filed.

Question 19

Bylaws adoption and amendment procedure

Answer 19

BoD adopts bylaws at an organizational meeting

SHs can always amend and repeal the bylaws

If SHs and Bylaws conflict, the articles always prevail

Question 20

Promoter

Answer 20

Person acting on behalf of a corporation not yet formed. Essentially an entrepreneur

Question 21

Liability of corporation on pre-incorporation contracts

Answer 21

Corporation is NOT liable for pre-incorporation contracts unless if it ADOPTS the contract

Can adopt expressly (board resolution) or impliedly (if the corporation accepts a BENEFIT of the corporation)

Question 22

Promoter’s liability on pre-incorporation contracts

Answer 22

Unless contract clearly provides otherwise, promotor liable until there is a NOVATION (agreement of promoter, corp, and 3rd party that corp will replace the promoter)

NOTE: Novation is the only way to relieve promoter. Mere adoption by corporation will create JOINT & SEVERAL LIABILITY

Question 23

Foreign Corporations

Answer 23

A corporation incorporated OUTSIDE THIS STATE (Not literally foreign)

If transacting biz in this state, must QUALIFY and PAY FEES

Transacting biz: regular course of intrastate business activity. Does NOT include occasional or sporadic activity or simply owning property in the state

Qualify: get certificate of authority from Secretary of State (asserts good standing and registered agent in the state)

Can’t sue until qualify and pay fees, but can be sued.