Corporate Formation, Promoters and Piercing the Corporate Veil: every key term you need (+ practice quiz)
25 flashcard terms for Business Associations Topic 4, written to match the course framework. Study them here, then drill them as interactive flashcards, or test yourself with the 15-question quiz — free, no account needed.
An entity formed in substantial compliance with the incorporation statute, whose separate existence and limited liability cannot be attacked by the state or by private parties.
De facto corporation
A common law doctrine sparing good faith organizers who made a colorable attempt to incorporate under a valid statute and then carried on business as if incorporated; many states have abolished it.
Corporation by estoppel
A doctrine barring a party who dealt with a business as a corporation from later denying corporate status to reach the owners personally, applied mainly in contract rather than tort cases.
Articles of incorporation
The charter filed with the state, stating the corporate name, number of authorized shares, registered agent and office, and the name and address of each incorporator.
Incorporator
The person who signs and delivers the articles for filing; the role usually ends once the initial directors are named or elected at the organizational meeting.
Bylaws
Internal rules on meetings, officers, committees, and share transfers, adopted by the incorporators or the board and amendable by shareholders or, if authorized, by directors.
Ultra vires
Action beyond a narrow stated corporate purpose; modern statutes let corporations pursue any lawful business and confine challenges to shareholder suits, state actions, and claims against officers.
Promoter
A person who arranges for the formation of a corporation, procures capital and contracts, and owes fiduciary duties of good faith and full disclosure to the corporation and to early investors.
Pre-incorporation contract
An agreement a promoter signs before the corporation exists; the promoter is personally liable on it, and the corporation is bound only if it later adopts the deal.
Adoption by the corporation
Post-formation acceptance of a promoter's contract, express or by knowingly taking its benefits, which makes the corporation liable while leaving the promoter liable as well.
Novation of a promoter contract
A three-party agreement substituting the corporation for the promoter, and the only reliable way to release the promoter from personal liability on a pre-incorporation deal.
Subscription agreement
An offer to buy shares from the corporation; under the MBCA a pre-incorporation subscription is irrevocable for six months unless the instrument provides otherwise or all subscribers consent.
Registered agent
The person or company designated in the articles to receive service of process and official notices at a registered office within the state of incorporation.
Foreign corporation qualification
A corporation transacting business outside its state of incorporation must obtain a certificate of authority; failing to qualify usually bars it from suing there until it registers and pays fees.
Internal affairs doctrine
The choice of law rule under which the law of the state of incorporation governs relations among the corporation, its directors, its officers, and its shareholders.
Model Business Corporation Act
The MBCA is the uniform corporate statute adopted in a majority of states, notable for its director conflict safe harbor, universal demand rule, and modern dissenters' rights provisions.
Delaware General Corporation Law
The DGCL governs most large public companies; its enabling philosophy, permissive charter options, and the Court of Chancery's case law dominate American corporate practice.
Piercing the corporate veil
An equitable remedy disregarding limited liability to reach shareholders personally where the entity was used as an instrumentality to commit fraud or work a serious injustice.
Alter ego theory
Piercing where the owner and the entity showed such a unity of interest that separate personalities ceased to exist, and honoring the form would sanction fraud or promote injustice.
Undercapitalization
Funding the business far below the foreseeable risks of its trade; standing alone it rarely justifies piercing, but combined with other abuses it is a powerful factor.
Failure to observe formalities
Skipping meetings, minutes, share issuance, and separate accounts, which evidences that the shareholder treated the corporation as a personal pocketbook.
Commingling of assets
Mixing corporate and personal funds, paying personal expenses from the corporate account, or shifting assets among affiliates without documentation, a leading trigger for piercing.
Enterprise liability
Horizontal piercing that treats affiliated corporations under common ownership operating as a single integrated business as one entity for the satisfaction of a claim.
Reverse veil piercing
Reaching corporate assets to satisfy the personal debt of a shareholder, a remedy courts grant sparingly because it harms innocent creditors and minority holders of the entity.
Close corporation
A corporation with few shareholders, no public market, and often shareholder participation in management, supported by statutes permitting board elimination and enforceable buy-sell agreements.