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Social Science Law CA Business Associations - Agency, Partnerships, Corporations 97 questions and correct answers (elaborations) with 100% accurate , verified , latest fully updated , 2024/2025 ,already passed , graded a+, complete solutions guarantee dis$11.49
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CA Business Associations - Agency,
Partnerships, Corporations
De Jure Corporation
Lawful corporation that has met the substantial elements of incorporation process.
The incorporators must sign and file an articles of incorporation with the secretary of state that
includes:
- Initial agent's name for the corporation
- Street address for the corporation's initial registered agent.
- Corporation's name.
- Authorized number of shares.
- Name and address of each incorporator.
("I SCAN")
De Facto Corporation
A de facto corporation exists where there is actual use of corporate power and a good faith, but
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unsuccessful, attempt to incorporate under a valid incorporation statute.
The law will treat the defectively formed corporation as an actual corporation and the shareholders
will not be personally liable.
Corporation by Estoppel
A person who deals with a business entity believing it is a corporation, or one who incorrectly holds
the business out as a corporation, may be estopped from denying corporation status.
- applies in contract only, not tort.
- Application of this doctrine will allow shareholders to escape personal liability.
Piercing the Corporate Veil
Generally, a corporate shareholder is not liable for the debts of the corporation, except when the court
pierces the corporate veil and disregards the corporate entity, thus holding shareholders personally
liable as justice requires.
- this most commonly works in the context of closely held corporations.
The veil can be pierced for the following reasons:
a. Alter ego: when the shareholders fail to treat the corporation as a separate entity, but more like an
alter ego where corporate formalities are ignored and/or personal funds are commingled.
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b. Undercapitalization: where the shareholders' monetary investment at the time of formation is
insufficient to cover foreseeable liabilities; some courts in close corporations look at future debts if
foreseeable.
c. Fraud: where corporation is formed to commit fraud or as a mechanism for the shareholders to hide
behind to avoid existing obligations.
d. Estoppel: where a shareholder represents that he will be personally liable for corporate debts.
The effect of piercing the corporate veil is to hold active shareholders joint and severally liable.
Ultra vires acts
Generally, it is presumed that all corporations are formed for any lawful business purposes. However,
if a corporation has a limited state purpose in its articles and it acts outside its state business
purpose, it is acting "ultra vires." Modernly, ultra vires acts are generally enforceable.
Under the modern approach, ultra vires acts can be challenged only when:
- the ultra vires act causes the state to seek dissolution
- the corporation sues an officer or director
- a shareholder sues to enjoin the proposed act
A third party generally CANNOT escape liability for a transaction that is an ultra vires corporate act.
Shares of Stock
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Equity securities that give the shareholder an ownership interest in the corporation.
The articles authorize the number of shares available to be sold. Shares that are sold are issued and
outstanding. Shares that have yet to be sold are authorized but unissued.
Types of Shares
authorized, issued, treasury, outstanding
The articles can provide that different classes of stock shares are available (common or preferred).
- Preferred shares must state the number of shares in each class, a distinguishing name for each
class, and the rights, preferences, and limitations for each class.
Preemptive Rights
the right of an existing shareholder to maintain her percentage of ownership in a corporation where
there is a new issuance of stock for cash.
modernly, unless the articles provide otherwise, a shareholder does not have preemptive rights.
A waiver of preemptive rights in writing is irrevocable.
Pre-Incorporation Actions by a Promoter
Promoters are persons acting on behalf of a corporation that is not yet formed.
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Promoters are personally liable for pre-incorporation contracts until there has been a novation
replacing the promoter's liability with that of the corporation or there is an agreement between the
parties that expressly states that the promoter is not liable.
- the promoter might have a right of reimbursement based on quasi contract for the value of the
benefit received by the corporation, or on the implied adoption of the contract.
- However, while a promoter may seek compensation for related expenses, it cannot compel the
corporation to pay because the acts were not undertaken at their direction.
A corporation is generally not liable for, or bound to, pre-incorporation contracts. Except that a
corporation will be liable where the corporation expressly adopts the contracts or accepts the benefits
of the contract (note: promoter is still also liable unless novation).
Promoter also has a fiduciary relationship with the proposed corporation requiring good faith.
Promoters therefore cannot make a secret profit on their dealings with the corporation.
Corporate Management Structure
3 tiers of management
1. stockholders (owners/voters)
2. board of directors--elected by shareholders
3. professional executives appointed by directors
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- Director required: all corporations must have at least one director.
- Article of incorporation: filed with the state to establish the corporation, and any provisions contained
in the articles will govern the corporation.
- Bylaws: management of the corporation is conducted in accordance with the articles and any bylaws
adopted by the board of directors.
- Election of BOD: annually at meeting
- Officers and committees: appointed by BOD to implement BOD decisions and carry out operations.
- Officer authority: officers have authority to act on behalf of the corporation based on agency
principles. An officer;'s authority to bind the corporation may be express, implied, or apparent.
- Removal: a director may be removed with or without cause by a majority s/h vote; the BOD may
remove an officer with or without cause.
- Resignation of an officer or director is permitted any time with notice.
BOD Meetings
The BOD must hold meetings, which can be regular meetings in accordance with the bylaws without
notice, or special meetings requiring at least two days notice.
Quorum Requirement: a quorum, which is a majority of the BOD, must be present at the time a vote
is taken for board action to be valid (default rule)
- presence can be by any means of communication so long as all members can hear each other and
the means is not prohibited by the articles or bylaws.
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