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Questions and Answers
What term describes a corporation that has operated as one for an extended period without state interference?
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?
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?
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?
When does a newly formed corporation become liable for pre-incorporation contracts entered into by a promoter?
What is the liability of a promoter for contracts made prior to the formation of a corporation?
What is the liability of a promoter for contracts made prior to the formation of a corporation?
Which type of corporation is composed only of individuals who do not share ownership as stockholders?
Which type of corporation is composed only of individuals who do not share ownership as stockholders?
Which role involves discovering business opportunities and attracting investment?
Which role involves discovering business opportunities and attracting investment?
In which situation is a corporation not initially liable for a contract made by a promoter?
In which situation is a corporation not initially liable for a contract made by a promoter?
What is a key characteristic of redeemable shares?
What is a key characteristic of redeemable shares?
What happens to redeemable shares upon their purchase by the corporation?
What happens to redeemable shares upon their purchase by the corporation?
Which of the following statements about founder’s shares is true?
Which of the following statements about founder’s shares is true?
What restriction exists concerning the voting rights granted by founder’s shares?
What restriction exists concerning the voting rights granted by founder’s shares?
What is one condition under which the corporate veil may be pierced?
What is one condition under which the corporate veil may be pierced?
What does the Control Test for piercing the corporate veil assess?
What does the Control Test for piercing the corporate veil assess?
Which law could prevent the exercise of voting rights granted by founder's shares?
Which law could prevent the exercise of voting rights granted by founder's shares?
What must be included in the articles of incorporation regarding redeemable shares?
What must be included in the articles of incorporation regarding redeemable shares?
What is an example of the Fraud Test in the context of piercing the corporate veil?
What is an example of the Fraud Test in the context of piercing the corporate veil?
What is required for the Harm Test to be met?
What is required for the Harm Test to be met?
Which of the following is NOT a characteristic of redeemable shares?
Which of the following is NOT a characteristic of redeemable shares?
In reverse piercing the corporate veil, what is the primary aim?
In reverse piercing the corporate veil, what is the primary aim?
What is required for shares to be classified as founder's shares?
What is required for shares to be classified as founder's shares?
Which condition allows a contract to remain valid despite involving a director or trustee?
Which condition allows a contract to remain valid despite involving a director or trustee?
How can the corporate veil be lifted from a corporation in reverse piercing?
How can the corporate veil be lifted from a corporation in reverse piercing?
Which of the following indicates a lack of separate existence for the subsidiary?
Which of the following indicates a lack of separate existence for the subsidiary?
What must be true for a contract with a director or trustee to be voidable by the corporation?
What must be true for a contract with a director or trustee to be voidable by the corporation?
Which of the following best describes the role of independent directors in material contracts?
Which of the following best describes the role of independent directors in material contracts?
Which of the following is NOT a requirement for piercing the corporate veil?
Which of the following is NOT a requirement for piercing the corporate veil?
Which of the following conditions is NOT necessary for a contract to be valid when involving relatives of directors?
Which of the following conditions is NOT necessary for a contract to be valid when involving relatives of directors?
What is required if a material contract involves a corporation vested with public interest?
What is required if a material contract involves a corporation vested with public interest?
What happens if the approval process for a contract with a director is not followed?
What happens if the approval process for a contract with a director is not followed?
In which case can a corporation enforce a contract with its officer without it being voidable?
In which case can a corporation enforce a contract with its officer without it being voidable?
What is the voting threshold required for a domestic corporation to approve its investment in a new corporation?
What is the voting threshold required for a domestic corporation to approve its investment in a new corporation?
What is the maximum number of incorporators allowed for an ordinary corporation?
What is the maximum number of incorporators allowed for an ordinary corporation?
What is required for a natural person to qualify as an incorporator?
What is required for a natural person to qualify as an incorporator?
In the case of a One Person Corporation (OPC), how many incorporators are needed?
In the case of a One Person Corporation (OPC), how many incorporators are needed?
What must be included with the application for registration if a partnership is an incorporator?
What must be included with the application for registration if a partnership is an incorporator?
Which party's presence at the board meeting is irrelevant to the voidability of a contract?
Which party's presence at the board meeting is irrelevant to the voidability of a contract?
Which entities can be included as incorporators for a corporation?
Which entities can be included as incorporators for a corporation?
What document is required to confirm that a domestic corporation can be an incorporator?
What document is required to confirm that a domestic corporation can be an incorporator?
What type of corporation requires at least one exhibit of share capital stock ownership by each incorporator?
What type of corporation requires at least one exhibit of share capital stock ownership by each incorporator?
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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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.
