Study guide
Corporations: Formation, Promoters, and Piercing the Corporate Veil
California Bar Exam Exam
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1 Exam Format and Core Skills
California Bar Exam Blueprint: Subjects, Components, and Recent Changes Exam Format, Scoring, and the 1390 Passing Score Essay Strategy: Issue Spotting and IRAC Core Written Skills and Timing Strategy
2 Civil Procedure
Subject Matter Jurisdiction: Federal Question, Diversity, Supplemental, Removal Personal Jurisdiction, Long-Arm, Minimum Contacts, and Service of Process Venue, Transfer, and Forum Non Conveniens The Erie Doctrine and Choice of Law Pleadings, Rule 11, Amendments, and California Demurrers / Anti-SLAPP Joinder of Claims and Parties, Impleader, Intervention, Interpleader Class Actions (Rule 23 and California) Discovery: Scope, Devices, Privilege, and Sanctions Pretrial Adjudication: Dismissals, Default, and Summary Judgment Trial, Jury, Judgment as a Matter of Law, and Post-Trial Motions Appeals, the Final Judgment Rule, and Claim/Issue Preclusion
3 Constitutional Law
Judicial Review, Justiciability, Standing, Ripeness, Mootness, and Political Questions Federal Legislative Power: Commerce, Taxing & Spending, and the Tenth and Eleventh Amendments Separation of Powers: Executive, Legislative, and Judicial Authority Federalism, Supremacy, Preemption, the Dormant Commerce Clause, and Privileges & Immunities State Action and Congressional Enforcement of the Reconstruction Amendments Procedural Due Process Substantive Due Process and Fundamental Rights Equal Protection and Levels of Scrutiny First Amendment: Speech, Press, Forums, and Association First Amendment Religion Clauses and the Takings Clause
4 Contracts
Applicable Law: Common Law vs. UCC Article 2 and Mixed Contracts Mutual Assent: Offer, Acceptance, Mailbox Rule, and UCC 2-207 Consideration, Bargained-for Exchange, and Promissory Estoppel Defenses to Formation: Capacity, Mistake, Misrepresentation, Duress, Unconscionability The Statute of Frauds Parol Evidence Rule and Contract Interpretation Conditions and Performance: Express, Constructive, and Substantial Performance Breach, Anticipatory Repudiation, and the Perfect Tender Rule Excuse of Performance: Impossibility, Impracticability, and Frustration UCC Warranties and Risk of Loss Third-Party Beneficiaries, Assignment, and Delegation Contract Remedies and UCC Buyer/Seller Remedies
5 Criminal Law and Procedure
Actus Reus, Mens Rea, Concurrence, and Causation Accomplice Liability and Parties to Crime Inchoate Crimes: Attempt, Conspiracy, and Solicitation Homicide: Murder, Manslaughter, Felony Murder, and California Degrees Other Crimes Against the Person: Assault, Battery, Kidnapping, and Sex Offenses Property and Theft Crimes: Larceny, Embezzlement, Robbery, Burglary, Arson Criminal Defenses: Insanity, Intoxication, Self-Defense, Duress, Necessity, Mistake Fourth Amendment: Searches, Seizures, Warrants, and Exceptions The Exclusionary Rule, Standing, and Fruit of the Poisonous Tree Fifth Amendment: Miranda, Self-Incrimination, and Double Jeopardy Sixth Amendment: Right to Counsel, Confrontation, Speedy Trial, and Jury Pretrial Identifications, the Eighth Amendment, and Trial Rights
6 Evidence
Relevance: Logical and Legal, Rule 403, and California Proposition 8 Policy-Based Exclusions: Subsequent Remedial Measures, Settlements, Insurance, Pleas Authentication and the Best Evidence Rule Witness Competency, Personal Knowledge, and Examination Impeachment of Witnesses Lay and Expert Opinion Testimony (Daubert and California Kelly/Sargon) Character Evidence and Other Acts (MIMIC) Habit and Methods of Proving Character Hearsay: Definition, Non-Hearsay, and Exemptions Hearsay Exceptions: Availability Immaterial (FRE 803) Hearsay Exceptions Requiring Unavailability (FRE 804) and the Confrontation Clause Privileges, Judicial Notice, and Presumptions (Federal and California)
7 Real Property
1.1 Estates in Land 1.2 Future Interests 1.3 Rule Against Perpetuities 1.4 Concurrent Ownership 1.5 Landlord-Tenant Law 1.6 Easements and Servitudes 1.7 Covenants Running with Land 1.8 Recording Acts and Title 1.9 Mortgages 1.10 Land Use Regulation Adverse Possession and Rights Incident to Ownership Land Sale Contracts, Marketable Title, and Risk of Loss Deeds, Delivery, Warranties of Title, and Fixtures
8 Torts
Intentional Torts Against the Person: Battery, Assault, False Imprisonment, IIED Intentional Torts to Property and Defenses/Privileges Negligence: Duty and the Standard of Care Negligence: Breach, Res Ipsa Loquitur, and Negligence Per Se Causation: Actual and Proximate Cause Negligence Damages and Defenses: Comparative Fault and Assumption of Risk Strict Liability: Animals and Abnormally Dangerous Activities Products Liability Private and Public Nuisance Defamation Invasion of Privacy, Misrepresentation, and Economic Torts Vicarious Liability, Joint Tortfeasors, and Immunities
9 Business Associations
Agency: Formation, Actual and Apparent Authority, and Ratification Agency: Principal/Agent Duties, Respondeat Superior, and Tort Liability General Partnerships: Formation, Rights, and Partnership Property Partnership Liability, Fiduciary Duties, Dissociation, and Dissolution Limited Partnerships, LLPs, and LLCs Corporations: Formation, Promoters, and Piercing the Corporate Veil Corporate Finance: Stock, Securities, Dividends, and Distributions Directors and Officers: Fiduciary Duties, the Business Judgment Rule, and Indemnification Shareholders, Derivative Suits, Fundamental Changes, and Federal Securities (10b-5, 16(b))
10 Community Property
General Principles, the Community Estate, and Marital Economic Community Characterization: Separate vs. Community Property and Presumptions Tracing and Commingling (Exhaustion and Direct Tracing) Transmutation and Premarital/Marital Agreements Special Assets: Businesses (Pereira/Van Camp), Goodwill, Education, Pensions, Disability Management, Control, and Spousal Fiduciary Duties Debts and Creditors' Rights Distribution at Dissolution and Death; Quasi-Community Property
11 Professional Responsibility
Regulation of the Profession, Admission, and Discipline (California Rules vs. ABA Model Rules) Competence, Diligence, Communication, and Scope of Representation Confidentiality and Its Exceptions (California vs. ABA) Conflicts of Interest: Current Clients Conflicts: Former Clients, Imputation, and Business Transactions Fees, Client Trust Accounts (IOLTA), and Safekeeping Property Duties to the Court and Third Parties: Candor, Advocacy, and Fairness Forming, Declining, and Terminating the Attorney-Client Relationship Advertising, Solicitation, and the Unauthorized Practice of Law Judicial Ethics, Reporting Misconduct, and Special Prosecutor Duties
12 Remedies
Compensatory Damages: Causation, Foreseeability, Certainty, and Mitigation Punitive, Nominal, and Liquidated Damages Restitution and Unjust Enrichment Constructive Trust and Equitable Lien Injunctions: Temporary Restraining Orders, Preliminary, and Permanent Specific Performance Reformation, Rescission, and Cancellation Equitable Defenses, Declaratory Relief, and Remedy Selection
13 Trusts
Trust Creation, Required Elements, and Types of Trusts Charitable Trusts, Cy Pres, and the Rule Against Perpetuities in Trusts Trustee Powers and Trust Administration Trustee Duties: Loyalty, Prudent Investor, and Impartiality Beneficiary Rights and Principal/Income Allocation Spendthrift, Discretionary, and Support Trusts; Creditors' Rights Modification and Termination of Trusts Breach of Trust, Remedies, and Will Substitutes (Totten, POD, Revocable Trusts)
14 Wills and Succession
Intestate Succession and California Distribution Will Execution and Formalities (Attested and Holographic; California) Testamentary Capacity, Undue Influence, Fraud, Duress, and Mistake Will Components: Integration, Incorporation, Acts of Independent Significance, and Pour-Over Revocation, Revival, and Dependent Relative Revocation Lapse, Anti-Lapse, Class Gifts, Ademption, Abatement, and Exoneration Protection of the Family: Omitted Spouse and Child, Pretermitted Heirs Will Contests, Standing, and No-Contest Clauses Probate Administration, Powers of Appointment, and Will Substitutes
15 Performance Test
The Performance Test: Task Memo, File, and Library Objective PT Products: Memos, Briefs, and Client Letters Persuasive PT Products and 90-Minute Execution
Corporations: Formation, Promoters, and Piercing the Corporate Veil
Key Takeaways Explain This Topic AI
A de jure corporation is formed when articles of incorporation are filed and accepted by the secretary of state; the articles (CA Corp. Code §202) must state the corporate name, agent for service, and authorized shares.
A promoter is personally liable on pre-incorporation contracts made on the corporation's behalf and remains liable after incorporation unless there is a novation; the corporation is bound only if it adopts the contract.
De facto corporation and corporation by estoppel are equitable doctrines that can shield owners from personal liability despite a defective incorporation; California has largely limited these common-law doctrines.
Veil-piercing allows creditors to reach shareholders personally where the corporation is the shareholders' alter ego (unity of interest plus inequitable result) or undercapitalized/used to perpetrate fraud (Walkovszky v. Carlton).
California uses the alter ego test (Minton v. Cavaney) requiring unity of interest/ownership and that adherence to the corporate fiction would sanction fraud or promote injustice.
Last updated: June 2026
Formation: Articles, Bylaws, and the De Jure Corporation
A corporation is a creature of statute, and a de jure corporation comes into existence only when the articles of incorporation are filed with and accepted by the secretary of state . The articles are the corporation's foundational charter.
Under California Corporations Code §202 , the articles must set forth the corporate name , a statement of purpose (California permits the broad statement that the purpose is to engage in any lawful act for which a corporation may be organized), the name and street address of the corporation's initial agent for service of process , and the number of authorized shares the corporation may issue (and, if more than one class or series, the designations, rights, preferences, and restrictions of each). The persons who sign and file the articles are the incorporators .
Filing requires payment of fees and triggers the corporation's legal existence; the secretary of state's acceptance is conclusive evidence of due incorporation for most purposes.
The articles are distinguished from the bylaws , which are the internal operating rules of the corporation (notice of meetings, number of directors, officer duties, quorum requirements). Bylaws are adopted by the incorporators or the board and are not filed with the state; they may be amended more easily than the articles, which generally require board and shareholder approval to amend. Where the articles and bylaws conflict, the articles control . After filing, the corporation holds an organizational meeting to adopt bylaws, elect directors, appoint officers, and authorize the issuance of stock.
The corporation is a separate legal person with perpetual existence, the capacity to sue and be sued, to hold property, and to contract in its own name — and, most importantly for clients, it provides limited liability : shareholders are generally not personally liable for corporate debts, risking only their investment. That limited-liability shield is the prize that veil-piercing doctrine threatens.
Promoter Liability and Pre-Incorporation Contracts
A promoter is a person who acts on behalf of a corporation not yet formed — lining up investors, leasing space, hiring employees, and signing contracts before the entity legally exists. Because the corporation does not yet exist, it cannot be a party to these pre-incorporation contracts, and the promoter is personally liable on contracts she enters on the corporation's behalf.
The default rule is that the promoter remains personally liable even after the corporation is formed , unless and until there is a novation — a new agreement among the promoter, the corporation, and the third party releasing the promoter and substituting the corporation. Mere adoption of the contract by the corporation does not release the promoter; it simply adds the corporation as a liable party. The third party can then look to both.
The corporation, for its part, is not automatically bound by pre-incorporation contracts; it becomes liable only if it adopts the contract, either expressly (by board resolution) or impliedly (by knowingly accepting the benefits of the contract). Adoption is not the same as ratification because, strictly, ratification presupposes a principal that existed at the time of the act, and the corporation did not exist — so courts speak of adoption.
A promoter also owes fiduciary duties to the corporation, to its shareholders, and to co-promoters, including duties of good faith and full disclosure ; a promoter who sells property to the corporation at a secret profit, or who fails to disclose material facts to the investors or an independent board, breaches that duty and may be required to disgorge the profit.
Where a promoter intends that only the corporation be liable and the third party agrees the promoter is not personally bound, the agreement may be treated as a mere offer or revocable continuing offer to the corporation, relieving the promoter — but absent such an understanding, personal liability is the default.
Defective Incorporation: De Facto and Estoppel Doctrines
Sometimes businesspeople operate as a corporation but fail to perfect a de jure incorporation — the articles were never filed, were rejected, or contained a fatal defect. Two equitable doctrines historically protected the good-faith owners from personal liability.
The de facto corporation doctrine treats a defectively formed entity as a corporation for liability purposes where (1) a valid incorporation statute existed under which the entity could have incorporated, (2) the organizers made a good-faith, colorable attempt to comply with it, and (3) the entity actually exercised corporate privileges by operating as a corporation. If the doctrine applies, the business is treated as a corporation against everyone except the state , which alone may challenge its existence in a quo warranto proceeding. The owners thereby retain limited liability despite the defect.
The corporation by estoppel doctrine prevents a party who dealt with the business as if it were a corporation from later denying its corporate existence to reach the owners personally — a creditor who contracted believing it was dealing with a corporation, and who looked only to the corporate entity for payment, is estopped from holding the owners personally liable when the entity proves defective.
The estoppel can run both ways and is generally confined to contract claims, since a tort victim never chose to deal with a "corporation." Importantly, California has largely abrogated the common-law de facto and estoppel doctrines by statute: under the California scheme, corporate existence begins on filing of the articles, and persons who purport to act as or on behalf of a corporation, knowing there was no incorporation , are jointly and severally liable for the resulting obligations.
Thus a California bar answer should note that these equitable shields are disfavored and that knowing pre-incorporation actors face personal liability, reserving de facto/estoppel for the rare innocent, good-faith error.
Piercing the Corporate Veil
Even a properly formed corporation's limited-liability shield can be set aside through piercing the corporate veil , an equitable remedy that lets a creditor reach shareholders personally . Courts pierce reluctantly and most readily against closely held corporations with few shareholders (rarely against public-company shareholders) and more readily for tort creditors (involuntary victims) than for contract creditors (who could have bargained for protection).
The dominant test is the alter ego doctrine: the veil is pierced where (1) there is such a unity of interest and ownership that the separate personalities of the corporation and the shareholder no longer exist, and (2) adherence to the corporate fiction would sanction a fraud or promote injustice — an inequitable result . California's leading statements come from Minton v. Cavaney and Automotriz del Golfo de California v. Resnick , which articulate this two-prong unity-of-interest-plus-inequitable-result standard.
The factors that establish unity of interest include commingling of corporate and personal funds, failure to observe corporate formalities (no meetings, no minutes, no separate records), inadequate capitalization relative to the risks of the business, siphoning of corporate funds by the dominant shareholder, treating corporate assets as one's own , and use of the corporation as a mere instrumentality or shell . The classic case is Walkovszky v. Carlton (N.Y.
1966), where a cab company was split into numerous corporations each owning two cabs carrying only minimum insurance; the court declined to pierce based on undercapitalization alone , holding that the plaintiff had to allege the shareholder was conducting business in his individual capacity (an alter ego theory) rather than merely that the corporate structure was thinly capitalized — though the dissent and many later courts treat gross undercapitalization as strong evidence supporting a pierce.
A related theory, enterprise liability , consolidates affiliated corporations under common ownership that operate as a single business so their combined assets answer for a claim. The practical lesson: maintain separate finances, adequate capital, and corporate formalities, or risk personal exposure.
- Veil-Piercing Factor What It Shows
- Commingling of funds No separate identity
- Ignoring corporate formalities Shell, not a real corporation
- Inadequate capitalization Inability to meet foreseeable obligations
- Siphoning funds / personal use of assets Domination by shareholder
- Fraud or inequitable result Second prong required to pierce