NC Bar Exam: Corporations 2023
CORPORATIONS
ORGANIZATION
I. Formation
a. Need one or more incorporators
i. Submit articles to the Secretary of State
ii. Hold organizational meetings to elect directors and adopt by-laws, if the articles do not name
the initial directors.
1. An incorporator can be an entity or a natural person at least 18 years of age – do not need
to be residents
b. Articles of Incorporation
i. Name and street address of corporation
1. Name cannot be “the same as or deceptively similar to” any other name in the records of
the secretary of state.
ii. Name and address of each incorporator
iii. Name and a street address of registered agent/office e(official representation – gets service of
process, notices from state, etc)
iv. Number of authorized shares: maximum number of shares a corporation may sell.
1. But if more than one class of shares is authorized, articles must include the number and
attributes of each class.
c. Default Rules: (unless otherwise provided in articles) Perpetual duration; same powers as an individual;
and the purpose of engaging in any lawful business
i. Ultra vires act: valid, but:
1. Shareholder or state may seek an injunction to stop the contract; and
2. Officers and directors are personally liable for any ultra vires losses.
d. De jure corporation: the secretary of state’s filing the articles is conclusive proof a corporation was
formed in accordance with the law
II. De facto corporation/corporation by estoppel (“Safety nets”)
a. De facto corporation: requires a good faith attempt to comply with the statute and an act on the
corporation’s behalf.
i. Where one shareholder knows of the mistake, that shareholder is liable on the contract personally
b. Corporation by Estoppel: one who deals with a business as if it were a corporation may be estopped from
later arguing it is not a corporation.
c. Limitations: DFC and CBE protect shareholders only against contract claims, not tort claims, on the
theory that contract creditors could have protected themselves in advance (e.g., by getting a personal
guarantee from the shareholders)
III. Bylaws
a. Content: internal governance (e.g., president’s duties, meeting times, etc.)
b. Initial by-laws: adopted by the directors
c. Amendment: either directors or shareholders may amend the by-laws, but a shareholder by-law may be
amended only by shareholders unless the articles or a shareholder by-law authorizes the directors to
amend it.
d. Conflict: if by-laws and articles conflict, the articles control (public document)
IV. Pre-Incorporation Contracts
a. Promoter: a person acting for a corporation before it has been formed
, NC Bar Exam: Corporations 2023
b. Liability on Pre-Incorporation Contracts
i. Corporation: the corporation is not liable unless it adopts the contract as its own,
1. Express Adoption – board passes a resolution
2. Implied Adoption – corporation knowingly accepts the benefit of the contract
ii. Promoter: remains liable unless there’s a novation (rare)
V. Foreign Corporations
a. Definition: A corporation organized anywhere other than North Carolina
b. General Rule: a foreign corporation transacting business in North Carolina must qualify to do business
there.
i. “Transacting Business” means engaging in intrastate transactions in NC (transactions
completely within NC) on a regular basis.
ii. “Qualify” by getting certificate of authority from Secretary of State
c. Penalties:
i. Civil fines;
ii. Cannot bring suit in a NC court without getting a certificate of authority prior to trial (but can be
sued and defend itself)
ISSUANCE OF STOCK
I. Definitions
a. Issuance: when a corporation sells its own shares
i. Means of raising capital [selling shares, issuing shares, or borrowing money]
b. Issued Shares: number of shares a corporation actually sells
i. Less than the number of authorized shares
c. Outstanding shares: issued shares that corporation has not reacquired.
i. Corporations can buy back their own shares, leaving fewer shares outstanding in the hands of
their shareholders
II. Subscriptions: signed written offers to buy stock from the corporation
a. Revocability: depends on the timing!
i. Pre-Incorporation: Irrevocable for 6 months unless the subscription provides otherwise or all
subscribers consent.
ii. Post-Incorporation: revocable until the board accepts the offer.
b. Enforceability: a subscription is enforceable like any contract once the board accepts. Corporation may
sue the subscriber or sell shares to someone else.
III. Consideration [what the corporation must receive when it issues a stock]
a. Form: Consideration may take the form of any tangible or intangible property, a promissory note, services
performed, or services to be performed. [almost anything will suffice!]
b. Amount: [relevant only when a corporation’s shares have par value (option)]
i. Par value: minimum issuance price (not fair market value)
1. Minimum consideration: par value * number of shares
ii. Paying for Pay Value Stock with Property
1. Minimum consideration: property value must be at least par value * number of shares
2. NORTH CAROLINA: The board must only determine that the consideration is adequate
(not assign dollar value, as in many other states). In the absence of fraud, the board’s
determination of value is conclusive.
iii. “Watered Stock” Liability [paying less than par value for shares]
1. Cannot transfer away your watered stock liability if it exists.
CORPORATIONS
ORGANIZATION
I. Formation
a. Need one or more incorporators
i. Submit articles to the Secretary of State
ii. Hold organizational meetings to elect directors and adopt by-laws, if the articles do not name
the initial directors.
1. An incorporator can be an entity or a natural person at least 18 years of age – do not need
to be residents
b. Articles of Incorporation
i. Name and street address of corporation
1. Name cannot be “the same as or deceptively similar to” any other name in the records of
the secretary of state.
ii. Name and address of each incorporator
iii. Name and a street address of registered agent/office e(official representation – gets service of
process, notices from state, etc)
iv. Number of authorized shares: maximum number of shares a corporation may sell.
1. But if more than one class of shares is authorized, articles must include the number and
attributes of each class.
c. Default Rules: (unless otherwise provided in articles) Perpetual duration; same powers as an individual;
and the purpose of engaging in any lawful business
i. Ultra vires act: valid, but:
1. Shareholder or state may seek an injunction to stop the contract; and
2. Officers and directors are personally liable for any ultra vires losses.
d. De jure corporation: the secretary of state’s filing the articles is conclusive proof a corporation was
formed in accordance with the law
II. De facto corporation/corporation by estoppel (“Safety nets”)
a. De facto corporation: requires a good faith attempt to comply with the statute and an act on the
corporation’s behalf.
i. Where one shareholder knows of the mistake, that shareholder is liable on the contract personally
b. Corporation by Estoppel: one who deals with a business as if it were a corporation may be estopped from
later arguing it is not a corporation.
c. Limitations: DFC and CBE protect shareholders only against contract claims, not tort claims, on the
theory that contract creditors could have protected themselves in advance (e.g., by getting a personal
guarantee from the shareholders)
III. Bylaws
a. Content: internal governance (e.g., president’s duties, meeting times, etc.)
b. Initial by-laws: adopted by the directors
c. Amendment: either directors or shareholders may amend the by-laws, but a shareholder by-law may be
amended only by shareholders unless the articles or a shareholder by-law authorizes the directors to
amend it.
d. Conflict: if by-laws and articles conflict, the articles control (public document)
IV. Pre-Incorporation Contracts
a. Promoter: a person acting for a corporation before it has been formed
, NC Bar Exam: Corporations 2023
b. Liability on Pre-Incorporation Contracts
i. Corporation: the corporation is not liable unless it adopts the contract as its own,
1. Express Adoption – board passes a resolution
2. Implied Adoption – corporation knowingly accepts the benefit of the contract
ii. Promoter: remains liable unless there’s a novation (rare)
V. Foreign Corporations
a. Definition: A corporation organized anywhere other than North Carolina
b. General Rule: a foreign corporation transacting business in North Carolina must qualify to do business
there.
i. “Transacting Business” means engaging in intrastate transactions in NC (transactions
completely within NC) on a regular basis.
ii. “Qualify” by getting certificate of authority from Secretary of State
c. Penalties:
i. Civil fines;
ii. Cannot bring suit in a NC court without getting a certificate of authority prior to trial (but can be
sued and defend itself)
ISSUANCE OF STOCK
I. Definitions
a. Issuance: when a corporation sells its own shares
i. Means of raising capital [selling shares, issuing shares, or borrowing money]
b. Issued Shares: number of shares a corporation actually sells
i. Less than the number of authorized shares
c. Outstanding shares: issued shares that corporation has not reacquired.
i. Corporations can buy back their own shares, leaving fewer shares outstanding in the hands of
their shareholders
II. Subscriptions: signed written offers to buy stock from the corporation
a. Revocability: depends on the timing!
i. Pre-Incorporation: Irrevocable for 6 months unless the subscription provides otherwise or all
subscribers consent.
ii. Post-Incorporation: revocable until the board accepts the offer.
b. Enforceability: a subscription is enforceable like any contract once the board accepts. Corporation may
sue the subscriber or sell shares to someone else.
III. Consideration [what the corporation must receive when it issues a stock]
a. Form: Consideration may take the form of any tangible or intangible property, a promissory note, services
performed, or services to be performed. [almost anything will suffice!]
b. Amount: [relevant only when a corporation’s shares have par value (option)]
i. Par value: minimum issuance price (not fair market value)
1. Minimum consideration: par value * number of shares
ii. Paying for Pay Value Stock with Property
1. Minimum consideration: property value must be at least par value * number of shares
2. NORTH CAROLINA: The board must only determine that the consideration is adequate
(not assign dollar value, as in many other states). In the absence of fraud, the board’s
determination of value is conclusive.
iii. “Watered Stock” Liability [paying less than par value for shares]
1. Cannot transfer away your watered stock liability if it exists.
