Defective Incorporation

1
Defective Incorporation

• By
• Professor Marilyn Cane

2
De Jure Corporation

• A de jure corporation results when there has
  been conformity with the mandatory conditions
  precedent ( as opposed to merely directive
  conditions) established by the corporate statutes

3
De Facto Corporation

• A de facto corporation is one that has been
  defectively incorporated and is thus not de jure

4
De facto Corporation

• 1. Valid Law under which corporation can be
  lawfully organized
• 2. An attempt to organize thereunder
• 3. Actual user of corporate franchise
• 4. Good Faith in claiming to be and doing
  business as a corporation

5
De Facto Corporation

• A de facto corporation is recognized for all
  purposes except in a direct attack by the state
  in a quo warranto proceeding

6
Quo Warranto

• quo warranto (by what authority), in the original
  Latin form of the writ
• A writ brought before a proper tribunal, to
  inquire by what warrant a person or a corporation
  acts, or exercises certain powers. Blackstone.

7
Corporation By Estoppel

• Not a Corporation de jure nor de facto
• Typical scenario
• Where a third party sues the individual(s)
  behind the association but is estopped from
  denying the existence of the corporation
  because the third party treated the association
  as a corporation

8
Preclusive Effect

• A finding that there was a corporation de facto
  binds other third parties, i.e. there is a
  corporation de facto (in fact) which should
  shield the owners from liability
• A finding of a corporation by estoppel only binds
  the particular third party, since it is that
  third party which has been estopped