*Corporation Formation

Jurisdiction - Court of Chancery:

certificate of incorporation and bylaws; stocks; corporate assets; voting issues; mergers/consolidations; breaches of fiduciary duties; expense advancement or indemnification; director right of inspection; appraisal actions

Independent legal significance

—actions under different sections of DE corporation law are acts of independent legal significance, even if result is the same.

Promoters

—people who bring corporation into existence

Promoter pre-incorporation liability

—personally liable for knowingly acting on behalf of corporation before incorporation.

• Released from liability if parties’ intentions were that the promoter not incur liability, the contract or other agreement releases the promoter, or there is a novation

Promoter - Fiduciary Duty to corporation

—owe fiduciary duties to pre-incorporated corporation; can be liable for breaching duty

Promoter - Reimbursement

—corporation generally not required to compensate promoters for services rendered before incorporation; may agree to compensation after incorporation

Corporation liability - General rule

—no liability for pre-incorporation transactions

• Contract adoption—corporation can be liable if it adopts (expressly or impliedly) contract after incorporation

Incorporators Liability

• —people who sign and file certificate of incorporation

• —not automatically liable for contract entered into by promoter

Incorporation

—must file certificate of incorporation (COI) with Division of Corporations in the Department of State

COI Procedures/Rule statement

COI requirements: (1) corporation name, (2) nature of business/purpose, (3) number of shares corporation authorized to issue, (4) name and address of registered agent and office, (5) name and address of all incorporators. The Corporation's name must contain a specific designation such as "company," "corporation," or an abbreviation thereof.  COI must state: number of authorized shares and classes, par value (or indication that there is none), any special class attributes. A broad statement of the Corporation's purpose (e.g., to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (DGCL)) is acceptable.  If the incorporators' powers terminate once the COI is filed, then the names and addresses of the directors serving until their successors are elected must also be included. COI may include any provision required to be stated in bylaws.

Filing requirements: The COI must be filed in the Division of Corporations in the Department of State, and a filing fee must be paid. Unless a delayed date is specified in the COI, the corporate existence begins when the COI is filed.  The COI may not set an effective date more than 90 days after the filing date.

• Unless a delayed date is specified in the COI, the corporate existence begins when the COI is filed.  The COI may not set an effective date more than 90 days after the filing date.

Amendment of the COI

 The original COI may be amended to add any provision that would have been lawfully and properly included in the original COI. 

• Example: This includes creating new classes of stock (e.g., preferred stock).  

Ultra vires act

—action that is outside corporation’s business purpose as stated in COI

Challenges to Ultra vires act

Challenges—can only be challenged if (1) stockholder sues to enjoin action (if equitable), (2) corporation sues director/officer for loss/damage caused by unauthorized action, or (3) attorney general proceeds against corporation to dissolve it or enjoy action

De Jure corporation

—created after substantial compliance with incorporation requirements

Defective incorporation (de facto corporation)

three requirements: (1) general law permits lawful corporate existence, (2) bona fide attempt to organize and colorable compliance with requirements, and (3) actual use of corporate powers

De Facto - Lack of good faith

Lack of good faith—person conducting business as corporation who does not attempt to comply with statutory requirements is liable for all obligations incurred in name of nonexistent corporation

De Facto - Corporation by estoppel

—person contracting with entity as though it is a corporation is estopped from denying its existence if owner (1) made good faith effort to comply with incorporation requirements, and (2) did not know requirements were not met