Defective Formation Of Corporations And Revival Of Existence

• Author: James D. Cox/Thomas Lee Hazen
• Profession: Professor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
• Pages: 74-83

§6.1 Problems Arising from Defects in Formation

There are various degrees of noncompliance with the statutory for-

malities, some of which are of more and others of less importance in

affecting corporate status. The defect, shortcoming, or irregularity

complained of may or may not be accidental, may or may not affect

the merits of a case being litigated, and may or may not have harmed

the person who seeks to raise questions of defective incorporation. In

determining the consequences attaching to defective organization,

courts typically speak in terms of “de jure corporation,” “de facto

corporation,” and “corporation by estoppel.”

Consider the following possibilities: (1) The associates in a business

enterprise may brazenly pretend to be incor porated without attempting

to take some or any of the required st atutory steps or may assume acting

as a corporation with knowledge that the steps taken are incomplete.

(2) The associates may execute articles of incorporation but, by some

inadvertent mischance, may fail to get them filed in any public office.1

(3) The associates may file the articles of incorporation with a state

official, who may reject them.2 (4) In one of the few states that still

require the art icles to be filed in two different government offices , they

may file the articles in only one of the two prescribed offices. (5) The

articles as f iled may not be in proper form, may omit required prov isions,

or may be incorrectly executed or acknowledged by the incorporators.

(6) The associates may fail to pay in the minimum required capital

in a state in which that is still prescribed as a condition precedent to

doing business. (7) The associates may fail to hold an organizational

meeting of incorporators, shareholders, or directors, or fail to adopt

bylaws or to elect directors and officers.3 (8) The statute under which

the associates attempt to incorporate may be unconstitutional or may

not authorize formation of corporations to do the kinds of business

the corporation is being organized to conduct. (9) The associates may

purport to continue to do business as a corporation after its prescribed

term of existence has expired, after revocation of its charter, or after it

has been dissolved.4

If business associates purport to conduct their enterprise as a

corporation but have not complied with statutory requirements for

the organization of a corporation, or if the organization is otherwise

defective in one or more of the respects just enumerated, will their

association be treated as a corporation? Or perhaps the more accurate

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