Instrumentality requirement is satisfied:
I) control of a subsidiary by parent
ii) to commit fraud
iii) to cause loss or injury.
3.PIERCING THE WALL BETWEEN AFFILIATED CORPORATIONS - this occurs when a P with a claim against one corp attempts to satisfy the claim against the assets of an affiliated corp under common ownership. This type of aggregation is permitted only when each affiliated corp is NOT a free-standing enterprise but merely a fragment of an entity composed of affiliated corps.
4.USE OF CORPORATE FORM TO EVADE STATUTORY OR CONTRACT OBLIGATIONS - the corp form may be ignored when it is used to evade a statutory or contractual obligation. The issue is whether the contract or statute was intended to apply to the shs as well as the corporation. Only third parties, not the corp or its shs, are generally allowed to disregard the corp entity.
5.TWO EXTREMES TO AVOID IN PIERCING THE CORPORATE WALL:
a) Old model - Superman (sh) used corp as his puppet;
b) New Model - Superman (sh) and corp are inseparable (alter ego)
D.SUBORDINATION OF SHAREHOLDER DEBTS - "DEEP ROCK "DOCTRINE - if a corp goes into bankruptcy, debts to its controlling shs may be subordinated to claims of other creditors. When subordination occurs, shareholder loans are treated as if they were invested capital (stock). Major factors in determining whether to subordinate include fraud, mismanagement, undercapitalization, commingling, excessive control, etc.
II.ORGANIZING THE CORPORATION - generally, corps are created under and according to statutory provisions of the state in which formation is sought.
A.FORMALITIES IN ORGANIZING CORPORATION:
1.CERTIFICATE OR ARTICLES OF INCORPORATION - state law governs the content of the articles, which are filed with the secretary of the state. Usually, the articles must specify the corp name, number of shares and classes of stock authorized, address of the corp's initial registered office, name of initial registered agent, and the name and address of each incorporator.
a) Purpose Clause - under most statutes, no elaborate purpose clause is needed. It is sufficient to state that the purpose of the corp is to engage in any lawful business activity.
b) State of Incorporation - incorporators need to consider how flexible the state's corporate law is versus the costs associating with incorporating in that state
2.ORGANIZATIONAL MEETING - filling the articles in proper form creates the corporation, after which an organizational meeting is held by either the incorporators or dirs named in the articles. Matters determined at meeting:
1) Incorporators elect directors, if no dirs are named in the articles;
2) Directors choose officers;
3) Directors ratify pre-incorporation transactions;
4) Directors authorize issuance of shares
5) Directors adopt by-laws (i...
