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 cor porate 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 quest ions of defective incorporation. In

determining t he consequences attaching to defect ive organization,

courts ty pically 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 k nowledge 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 a ny public office.1

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

official, who may reject t hem.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 art icles 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 ack nowledged by the i ncorporators.

(6) The associates may fail to pay in t he minimum requ ired capital

in a state in which that is st ill prescribed as a condition precedent to

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

meeting of i ncorporators, shareholders, or di rectors, or fail to adopt

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

the associates attempt to incorporate may be u nconstitutional or may

not authorize formation of corporations to do the kinds of business

the corporation is being organ ized 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 requ irements for

the organ ization of a corporation, or if t he 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

74 | C  C G: C  L

cox85509_06_c06_p073-084.indd 74cox85509_06_c06_p073-084.indd 74 6/28/12 9:15 AM6/28/12 9:15 AM