Corporations with Siebecker
I. Corporate Form
A. Limited liability arises at the time of the filing of the Articles of Incorporation. It is actually quite easy to create a corporation. However, some people somehow still manage to screw it up. Since we want to encourage people to create corporations and engage in business, there are theories that allow the entity that is nor properly incorporated (or has some other defect) to be treated as a corporation. That is, the person that has been dealing with the entity as a corporation is force to continue to treat it as such
1. Corporation by Estoppel: Does not allow someone to claim that there is no corporation when they have been dealing with the business as a corporation.
i. standard:
a. They have treated the party as a corporation
b. There would be a substantial windfall by asserting that there is no corporation
c. Substantial rights are not affected
i. A Q arises as to what the substantial rights at stake are.
ii. (Southern Gulf): Two companies signed an agreement to buy/sell a boat. The buyer was not fully incorporated when the Ks were signed and ended up getting incorporated in a place other than what was proposed (Cayman Islands as opposed to Tx). The market price of such boats has increased and seller is trying to get out of the K by claiming that it is not enforceable because the K was signed w/ a buyer that was supposed to incorporate in Tx. The Buyer raises the theory of corporation by estoppel. Court enforced the K under the theory because the Seller had been dealing with the Buyer as a Corporation the whole time.
a. Is the Southern Gulf outcome efficient? It is not efficient it is not giving the parties what they wanted/ what they bargained for. A question arises as to whether it was really important that the corporation be reg in Tx.
b. How do you avoid being the looser in this situation? You write a good K that makes clear what you want by making your requirements conditions to the deal or by making them material duties that would result in a material breach of not present. Input penalties.
c. Considerations for attorney in drafting K:
i. Does the client care about solidifying the deal or about solidifying who is on the other side of the deal?
ii. Does client want to make sure that he is contracting w/ a certain kind of person or corporation?
B. Abuse of the Corporate Form
1. Piercing the Corporate Veil (irregular application, very fact-specific): Notion that the business is the alter ego of the individual behind it and is really being conducted in the individual’s capacity. By definition it occurs the case that there is only one s/h; where there is more than one s/h, the Ct should not veil pierce unless both were improperly using the Co as their alter ego and in the same way.
i. Asserted when: Plaintiff wants to go after the personal assets of the individual. Standard:
a. Unity of ownership and interest so that the separate personalities of the individual and the corporation do not exist. Common factors are:
i. Failure to maintain corporate records or comply w/ corporate formalities
ii. Commingling
ause corporations are regulated, thus bringing in an element of predictability and clarity to the deal. Furthermore, a corporation dealing w/ an individual might look unequal.
D. When a promoter gives a personal guarantee for the corporation, the promoter will remain liable along w/ the corporation until there is a novation by which the other party agrees to release the individual from liability and just hold the corporation liable.
II. Nature of the Corporation:
A. Nexus of Ks Theory (Delaware): Sees corporation as a series of Ks b/w parties. Efficiency rules are used to interpret the Ks
B. Purpose/Role (view as to what the nature of the corporation will affect analysis)
1. Maximization of s/h wealth: engage in activities, such as charitable giving and firing of employees, w/ the sole consideration of whether it will increase s/h value
i. Dodge v. Ford(288): Ct said that the corporation’s duty was to the s/h and not to the public generally. Cannot expand at the expense of s/h profits just for the purposes of creating jobs.
2. Social Player: ability to make any donation v. ability to make donations when they further corporate goals
i. AP Smith (282): corp can make charitable donations in the advancement of the public interest and as long as it will contribute to the furthering of corporate interests. Possible factors that might challenge the validity of a donation: indiscriminate donations to a pet charity, excessive amount.
