Defective Incorp.

1. Can't Really Have Defectively Incorp'ed Corp's Now
2. Defective Corp's From Before
   1. Ct Upholds De Jure / De Facto Corp's
      1. De jure is min. failure 2 observe formality
      2. De facto is sig. noncompliance btu still corp. if good faith attempt 2 comply

Disregard of Corp.

1. Stt. Exception 2 Limited Liab. of SH
   1. NY Corp. Code §630
      1. Ten largest SH's liab. 4 ee'swage claims against corp.
      2. But if incorp. somewhere else, elim's this
2. Piercing Corp. Veil: C/L Exception
   1. Hold SH Pers'ly Liab. 4 Claims Against Corp. By Policy
      1. Tort claim, then claimant is invol. creditor
      2. K claim, then claimants knew / may have known
   2. Factors 4 Analysis
      1. Capitalization
      2. Respect
      3. Observing corp. formality
      4. Sep.
      5. Mingling of asset
      6. Claimants
   3. Tort Cases
      1. Enterprise entity theory only pierces hz'ly (Carlton,10 cabs)
      2. Stand's 4 piercing
         1. SH treat corp. asset as own (Carlton)
         2. Disjunctive / corp. officer hold out as pers'al liab.
         3. Inadeq. cap. + active involvement (Minton, pool) but weak active involvement
            1. Undercap. can B met by min. liab. ins., lwring moral hazard (Carlton)
            2. Dissent (Carlton) wants suff. $ 2 meet rsbl foreseeable needs of busi.
   4. K Cases
      1. Should B harder 2 pierce b/c had opp. 2 protect itself so A/R w/subst'l trxn, but cases not make distinction
         1. Could've not done busi.
         2. Check out fin. stmt
         3. Pers'al guarantee
      2. Stand. 4 Piercing: Disregard corp. entity when no mind, will, existence of its own 4 busi. conduit
         1. Kinney Stand. (buffer corp.)
            1. Unity of int. in ownership so corp. not sep. by looking @ cap., corp. formalities, & causal cnxn btwn no formalities & harm 2 P
            2. Equity
            3. A /R b/c capacity 2 protect itself (only banks fin'ly sophisticated)
         2. Sea Land (pierced)
            1. Undercap. / no cap. is indispensable factor
            2. Absence of formalities , not sep, & comb corp. asset
3. Close Corp.
   1. Env. Not Conducive 4 Observing Corp. Formalities
      1. DL §354 is trend 2 dispense w/formalities, unlike ct's
      2. Still imp. formalities like min's 4 tax purposes
         1. Never backdate min's but memorialize
4. Parent Subsidiary
   1. Parent Corp. Owns Stock Other Corp's, Subsidiaries
      1. Common not 2 observe formalities b/c think subs not distinct
5. Fin. Stmt's Intro'ed
   1. Balance Sheet
      1. Asset - Liab. = Equity / Bkvalue which is only snapshot
      2. Asset on left showing what's actually in busi. but in historical cost
      3. Liab. of creditors & equity of SH on rt. showing claims people have
      4. Like 2 see low ratio of creditor claim 2 SH claim 4 worthy credit
   2. Income Stmt
      1. Income = Gross Rev. - Cost
      2. Perf. over def'ed per. of X

Subordination of SH Claims

1. Creditors Paid 1st
2. Equitable Subord. Doc.
   1. When person is creditor & SH, equitably subord. so creditor/SH will B last 2 claim
   2. Not holding anybody pers'ly liab.
3. Factors
   1. Adeq. cap. of corp. @ X loan made such that if no rsbl 3rd party creditor would loan, then treat $ by SH as equit. contrib.
   2. If loan is same proprotion as stock holding, then equit. contrib.
   3. If loan then equity cap., looks better

This material is copyrighted by the author. Use of this material for profit is strictly prohibited without written consent from the author.

12/2/1996

Ms. Haeji Hong

Go Back to Law School Notes Go Back to Law School Notes