In this article we will explore in depth the topic of De facto corporation and corporation by estoppel, a topic of great relevance today that affects different sectors of society. We will investigate its origin, history and evolution over time, as well as its impact on people's daily lives. In addition, we will analyze different perspectives and opinions on De facto corporation and corporation by estoppel, with the aim of providing a broad and complete overview of this topic. Through this research, we aim to offer our readers a deeper understanding of De facto corporation and corporation by estoppel, so that they can form an informed opinion and contribute to the debate around this matter.
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De facto corporation and corporation by estoppel are both terms that are used by courts in most common law jurisdictions to describe circumstances in which a business organization that has failed to become a de jure corporation (a corporation by law) will nonetheless be treated as a corporation, thereby shielding shareholders from liability.
In order for a de facto corporation to be created, the following elements must exist:
If all of these requirements are met, then the business will be treated as a corporation for all purposes, except with respect to acts by the state itself. However, most states will not apply this doctrine to protect a person who was aware that the incorporation effort was defective at the time that they purported to act on behalf of the corporation.[citation needed]
Corporation by estoppel, on the other hand, applies when someone operates a business as if it were a limited liability entity or corporation, irrespective of whether there was a good faith effort by the business to incorporate. The person doing business with such an entity, as if it were a limited liability entity or corporation, may later be estopped from arguing that it is not in fact a limited liability entity, in an attempt to reach the assets of the incorporators. For the same reason, defendants who had acted as a corporation will be estopped from denying liability as a corporation when sued by a plaintiff who had relied on the defendant's corporate form when dealing with the defendant.