Shared Flashcard Set


PA Corporations
PA Corporations 2011 Bar Exam

Additional Law Flashcards




Corporation, Distinctive Characteristics (4)
Treated as a separate, distinct legal entity with the following characteristics:

1. Perpetual Life
2. Transferability of Interest
3. Centralized Management separate from Ownership
4. Limited Liability of Ownership
Corporation as Separate Legal Entity (4)
1. Person - as a natural person, entitled to all associated rights (i.e. DP, EP, atty-client privilege) except Self-Incrimination

2. Citizen - Entitled to all rights associated with
- Exception: Not a citizen for P&I, so restrictions are valid on foreign corps so long as police power
- Federal Diversity Jurisdiction - Dual citizenship in state of incorporation and state of principal place of business, if different

3. Resident - states where incorporated, doing business, and perhaps able to do business

4. Domicile - state of incorporation
- Taxation - multiple domiciles PPB/incorp
Principal Place of Business Test
Question of fact

Where high level officers direct, control, and coordinate corp activities, usually headquarters
Formation of Corporation
In PA, by complying with provisions of Business Corporations Law (BCL) a De Jure Corporation is formed

Incorporators must file Articles of Incorporation with state & pay fee
Formation, Articles of Incorporation Contents
1. Name of Corporation - unique, non-misleading
2. Name & Addresses of Incorporator(s)
3. Registered Office to receive service of process & official communications
4. BCL Statement - state incorporated under BCL of 1988
5. Aggregate Number of Authorized Shares

Optional Provisions:
1. Any legal provision relating to purpose
2. Effective Date if not date of filing
3. Duration
4. Capital Stock Structure - naming different classes & characteristics
5. Par Value of stock
6. Number of Directors & Qualifications
7. Business Purposes - presumed formed to carry on any legal transaction, but purpose must be stated in docketing transaction anyway
Ultra Vires Acts
When a corporation acts outside of its stated purpose

Traditionally, at common law, act void

BCL, ultra vires acts are enforceable and only matters in 3 situations:
1. Shareholder may sue to enjoin proposed UVA if equitable (innocent 3d party)
2. Corp may sue officer/director for damages resulting from UVA
3. State may bring action corp to dissolve it for UVA

Not UVA: charitable donations
AoI, Filing & Recording
Duly executed AoI must be signed by incorporator and filed with PA Dept of State along with fees
Certificate of Incorporation
Issued upon PA Dept of State's acceptance of AoI

Conclusive proof that entity is a corp
Additional Formation Procedures, Bylaws
Once existence begins, hold meeting to select directors & vote in bylaws

Bylaws may contain any provision for managing corp not inconsistent with law or AoI

Shareholder meetings, subsequent votes to adopt, amend, and repeal bylaws unless vested with board

Board may not adopt/change Bylaws relating to:
1. Amendment of voting provisions
2. # of authorized shares
3. Personal liability of directors
4. Shareholder voting rights, or
5. Management by shareholders
AoI & Bylaws, Exam Approach
If conflict between AoI/Bylaws/Statute, order of priority goes: Statute, AoI, then bylaws

If no conflict, enforce Bylaw/AoI
Formation, De Facto Corporation
Statutory requirements of formation are not met, corp may still be recognized.

1. Law under which entity could have been incorp
2. GF attempt to comply with law
3. Exercise of corp privileges - acts like corp

- All rights & powers of corp
- Remains subject to direct attack by state in quo warranto proceedig
Formation, Corporation by Estoppel
P cannot challenge status as corp of an entity that P had recognized and dealt with as or represented and held it to be a corp

May be used against outsiders who dealt with entity as corp

May be used against corp attempting to avoid obligation

Does not apply to tort liability
Formation, Consequences of Defective Incorporation
Personal Liability of Shareholders - active associates are treated as partners and personally liable

Implied Warranty of Authority - officers/directors/employees of defective corp may be liable for breach
Piercing the Corporate Veil (PCV), Types (3)
Directors/Officers/Shareholders may be held personally liable in a valid corp because abusing corp form.

Strong presumption against PCV in PA

Types (3):
1. Ignoring Corp Formalities
- Individual Shareholders - treat assets of corp as own or lack of other formalities causing some basic injustice; sloppy administration may not be sufficient
- Parent-Sub - formalities of separate corp structures not maintained
- Affiliated Corps - one shareholder owns all stock of several corps, some cts hold other corps liable for other corps (PA not ruled) that are actually part of single entity

2. Inadequate Capitalization at Formation - put at risk of business unencumbered capital reasonable adequate for its prospective liabilities
- Close Corp - enough capital to pay debts as they become due (foreseeable)
- Parent-Sub - can sub reasonably expect to achieve financial independence

3. Necessary to Prevent Fraud
- Avoiding Liability - choosing corp form to avoid personal liability is insufficient
- Fraud - avoiding personal liability operates as fraud on creditors
PCV, Who is Liable
Active-Inactive Test - ordinarily, only persons active in management or operation are held liable, not passive investors

Theories of Liability
- Joint & Several - if shareholders held liable, liable J&S for entire amount
- Property Cases - fraudulent transfer to shareholder, PCV allows recovery via fraudulent conveyance principles
PCV, Types of Liability
Tort - often successful Ps dealing with insolvent corp shells

Contract - cts reluctant to PCV absent misrepresentation or fraud

Bankruptcy & Subordination of Claims - shareholder claims as creditors may be subordinated to claims of other creditors (Deep Rock Doctrine)
PCV, Who may pierce?
Creditors - most likely

Shareholders - virtually never works
Supporting users have an ad free experience!