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Corporate Law: Piercing the Corporate Veil
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Corporate Law: Piercing the Corporate Veil

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Questions and Answers

What term describes a corporation that has operated as one for an extended period without state interference?

  • Dissolved corporation
  • Defunct corporation
  • Corporation by estoppel
  • Corporation by prescription (correct)

    • Who are the individuals that originally form and compose a corporation?

  • Stockholders
  • Members
  • Incorporators (correct)
  • Promoters

    • What is a promoter primarily responsible for in the context of a corporation?

  • Acting as a legal advisor during litigation
  • Facilitating the formation of the corporation (correct)
  • Distributing profits to stockholders
  • Managing the corporation after its formation

    • When does a newly formed corporation become liable for pre-incorporation contracts entered into by a promoter?

    <p>Upon adoption or ratification of those contracts</p> Signup and view all the answers

    What is the liability of a promoter for contracts made prior to the formation of a corporation?

    <p>Liable until released by the corporation</p> Signup and view all the answers

    Which type of corporation is composed only of individuals who do not share ownership as stockholders?

    <p>Non-stock corporation</p> Signup and view all the answers

    Which role involves discovering business opportunities and attracting investment?

    <p>Promoter</p> Signup and view all the answers

    In which situation is a corporation not initially liable for a contract made by a promoter?

    <p>If the corporation chooses not to adopt the contract</p> Signup and view all the answers

    What is a key characteristic of redeemable shares?

    <p>They can only be issued if stated in the articles of incorporation.</p> Signup and view all the answers

    What happens to redeemable shares upon their purchase by the corporation?

    <p>They are considered treasury shares unless retired or disposed of.</p> Signup and view all the answers

    Which of the following statements about founder’s shares is true?

    <p>They can grant exclusive voting rights for up to five years.</p> Signup and view all the answers

    What restriction exists concerning the voting rights granted by founder’s shares?

    <p>They can deprive other shares of voting rights for their term.</p> Signup and view all the answers

    What is one condition under which the corporate veil may be pierced?

    <p>The subsidiary has grossly inadequate capital</p> Signup and view all the answers

    What does the Control Test for piercing the corporate veil assess?

    <p>The complete domination of finances and policy by the parent</p> Signup and view all the answers

    Which law could prevent the exercise of voting rights granted by founder's shares?

    <p>Anti-Dummy Law.</p> Signup and view all the answers

    What must be included in the articles of incorporation regarding redeemable shares?

    <p>The terms and conditions for their purchase.</p> Signup and view all the answers

    What is an example of the Fraud Test in the context of piercing the corporate veil?

    <p>The parent uses control to commit fraudulent acts</p> Signup and view all the answers

    What is required for the Harm Test to be met?

    <p>Establishing a direct connection between control and resultant injury</p> Signup and view all the answers

    Which of the following is NOT a characteristic of redeemable shares?

    <p>They may be issued without conditions.</p> Signup and view all the answers

    In reverse piercing the corporate veil, what is the primary aim?

    <p>To secure the assets of a corporate insider for claims</p> Signup and view all the answers

    What is required for shares to be classified as founder's shares?

    <p>They must grant exclusive voting rights in the articles of incorporation.</p> Signup and view all the answers

    Which condition allows a contract to remain valid despite involving a director or trustee?

    <p>A majority of independent directors approved the contract.</p> Signup and view all the answers

    How can the corporate veil be lifted from a corporation in reverse piercing?

    <p>If the corporation is primarily viewed as an alter ego of a person or entity</p> Signup and view all the answers

    Which of the following indicates a lack of separate existence for the subsidiary?

    <p>The subsidiary has no distinct assets apart from those from the parent</p> Signup and view all the answers

    What must be true for a contract with a director or trustee to be voidable by the corporation?

    <p>The contract is deemed fair and reasonable.</p> Signup and view all the answers

    Which of the following best describes the role of independent directors in material contracts?

    <p>They must approve the majority of material contracts.</p> Signup and view all the answers

    Which of the following is NOT a requirement for piercing the corporate veil?

    <p>Absence of parent corporation's influence over business practices</p> Signup and view all the answers

    Which of the following conditions is NOT necessary for a contract to be valid when involving relatives of directors?

    <p>The contract should be signed by the officer and a witness.</p> Signup and view all the answers

    What is required if a material contract involves a corporation vested with public interest?

    <p>At least a majority of independent directors must approve it.</p> Signup and view all the answers

    What happens if the approval process for a contract with a director is not followed?

    <p>The contract is voidable at the corporation's discretion.</p> Signup and view all the answers

    In which case can a corporation enforce a contract with its officer without it being voidable?

    <p>If the board of directors has previously authorized the contract.</p> Signup and view all the answers

    What is the voting threshold required for a domestic corporation to approve its investment in a new corporation?

    <p>At least two-thirds of stockholders</p> Signup and view all the answers

    What is the maximum number of incorporators allowed for an ordinary corporation?

    <p>15</p> Signup and view all the answers

    What is required for a natural person to qualify as an incorporator?

    <p>Must be at least 18 years old</p> Signup and view all the answers

    In the case of a One Person Corporation (OPC), how many incorporators are needed?

    <p>1</p> Signup and view all the answers

    What must be included with the application for registration if a partnership is an incorporator?

    <p>Partners’ Affidavit</p> Signup and view all the answers

    Which party's presence at the board meeting is irrelevant to the voidability of a contract?

    <p>The director or trustee involved in the contract.</p> Signup and view all the answers

    Which entities can be included as incorporators for a corporation?

    <p>Any combination of natural persons, partnerships, or corporations</p> Signup and view all the answers

    What document is required to confirm that a domestic corporation can be an incorporator?

    <p>Directors’/Trustees’ Certificate or Secretary’s Certificate</p> Signup and view all the answers

    What type of corporation requires at least one exhibit of share capital stock ownership by each incorporator?

    <p>Stock corporation</p> Signup and view all the answers

    Study Notes

    Doctrine of Piercing the Corporate Veil

    • Parent corporations may fully own subsidiaries or facilitate their incorporation.
    • Factors for piercing the corporate veil include grossly inadequate capital and the parent covering subsidiary expenses.
    • Subsidiaries with minimal independent business operations or assets that primarily transact with the parent corporation may have their corporate veil pierced.
    • Parent corporations using subsidiary assets as their own can lead to veil piercing.

    Tests for Alter Ego Doctrine

    • Control Test: Requires complete domination of the subsidiary's finances and policies, resulting in a lack of separate existence.
    • Fraud Test: Control must be used to commit fraud or violate legal duties, causing unjust harm to the plaintiff.
    • Harm Test: There must be a direct link between the control/breach and the resulting injury or loss.

    Reverse Piercing of the Corporate Veil

    • Applicable to both corporations and individuals associated with them.
    • Corporate veil can be lifted to satisfy claims against corporate insiders' assets.

    Types of Corporations

    • Corporation by Prescription: Acknowledged for exercising corporate powers without State interference, recognized by law (e.g., Roman Catholic Church).
    • Corporation by Estoppel: Considered a corporation for those who cannot deny its existence due to prior conduct.

    Components of a Corporation

    • Corporators: Entities or individuals forming a corporation, either stockholders or members.
    • Stockholders: Corporators specifically in stock corporations.
    • Members: Corporators in non-stock corporations.
    • Incorporators: Original signatories and organizers of the corporation.

    Promoters

    • Promoters facilitate the formation of corporations, negotiating initial operations and contracts.
    • They bear personal liability for pre-incorporation contracts until formally adopted by the corporation.
    • A newly formed corporation is not automatically liable for contracts made by promoters unless they adopt or ratify them.

    Classes of Stock

    • Redeemable Shares: Can be issued only if stated in the articles of incorporation; may lack voting rights and can be purchased back by the corporation under specified terms.
    • Founder’s Shares: Special shares with exclusive rights, such as voting, limited to a period not exceeding five years; must be defined in incorporation documents.

    Incorporation and Organization Requirements

    • Number of Incorporators: Ordinary corporations require at least one and up to fifteen incorporators; a One Person Corporation (OPC) needs only one.
    • Qualifications: Integrators for stock corporations must own or subscribe to at least one share; they must also be legal adults.
    • Partnership Inclusion: Partnerships must submit affidavits confirming authorization to invest in the corporation.

    Contracts Involving Directors, Trustees, or Officers

    • Contracts with corporate insiders are voidable unless specific conditions are met, including non-reliance on their presence or vote for quorum, fairness of terms, and prior board authorization for officers.
    • Material contracts in public interest corporations require approval from independent directors.

    This concise outline captures the essential concepts and requirements stemming from the corporate governance principles discussed.

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    Related Documents

    Revised Corporation Code.pdf

    Description

    Explore the intricacies of the doctrine of piercing the corporate veil in corporate law. This quiz covers factors, tests for the alter ego doctrine, and reverse piercing relevant to parent and subsidiary relationships. Test your understanding of these essential legal concepts.

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