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CORPORATIONS LOWENSTEIN - SPRING 2006 - B

CORPORATIONS LOWENSTEIN - SPRING 2006 - B - CORPORATIONS...

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CORPORATIONS OUTLINE NATURE OF CORPORATION A. Promoters – A person who identifies a business opportunity and puts together a deal by forming a corporation as the vehicle for investment by others. 1. Promoter Liability - If the promoter contracts in the name of and solely on the behalf of the corporation to be, the promoter cannot be held liable if the corporation is never formed. - If the promoter contracts in his own name he can be held liable. a. All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation, are jointly and severally liable for all liabilities created while so acting. ( MBCA §2.04 ) 2. Corporate Liability - If the corporation ratifies or accepts the contract after incorporation, the corporation may be held liable on the pre-incorporation promoter contract. - Ratification may be express or implied B. Types of Corporations 1. De Jure Corporation – A corporation that has complied with all of a state’s mandatory incorporation provisions. Typical corporation. a. See MBCA Chapter 2: Incorporation. ; MBCA §4.01 . 2. De Facto Corporation – Even if a corporation has not complied with all of a state’s mandatory requirements, it may have completed enough to be given corporate status against third parties, but not against the state. Common Law. 3. Corporation by Estoppel – When a corporation is not de jure or de facto, courts may still hold that the entity is estopped from denying corporate status. a. One who contracts with what he acknowledges to be and treats as a corporation, is estopped from denying corporate existence when the obligations of the contract are sought to be enforced. ( Southern Gulf ) C. Characteristics of a Corporation 1. Separate Legal Entity – A corporation is a separate legal entity apart from its individual owners. A corporation has rights and duties as a separate entity. 2. Limited Liability – The owners (Shareholders) of the corporation have limited liability. Debts and liabilities of the corporation belong to the corporation and not the shareholders. 3. Continuity of Existence – The corporation continues indefinitely. The death of any of the owners does not terminate the entity. 1
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4. Management and Control – Management is centralized with officers and directors. The rights of shareholders are spelled out by each states corporate law. 5. Corporate Powers – As a legal entity a corporation can sue or be sued, own property, etc. D. Limited Liability – A corporation occurs debts and obligations in its own name. These debts are not the responsibility of the shareholders. Shareholder debts and obligations are not the responsibility of the corporation. 1. See MBCA §6.22 . 2. Possible ways to recover against a shareholder - Agency - Business Enterprise - Veil Piercing E. Piercing the Corporate Veil – Exceptions to the limited liability rule.
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