(a) Section 12-15 of Act 992

• Failure to comply with the Act e.g. sec 26 (contents of Constitution).
• An infant or person of unsound mind is a subscriber to the Constitution.
• A person named as a director in the Constitution is found incompetent to be appointed for under section 173.
• The objects or business to be carried out is unlawful.

(b) The artificial person is incapable of illegal or fraudulent acts hence the façade of corporate personality might be removed to identify the real guilty persons.

• Salomon v. Salomon, Mokor v. Kumah, etc.
• Courts generally go by the separate legal entity principle except in exceptional situations such as:
  • When the number of members or director is reduced below the statutory minimum, but the company continue to operate beyond the period stipulated for bringing the number to the required level, all those involve will be liable upon piercing the veil.
  • Misrepresentation in prospectus-subscribers can sue promoters/directors individually on the faith of untrue statement.
  • An officer who signs a contract, bill of exchange etc. on behalf of a company without naming the company will be liable personally.
  • Fraudulent acts and mischievous schemes uncovered during winding up with the intent to defraud creditors.
  • Ultra vires acts by directors and officers.
  • Avoiding contractual performance/transaction using the company as a front.
  • Jones v. Lipman, Gilford Motors Co. v Home.
  • Where a company is a façade, or a subsidiary is an agent of a holding company.

(c)

• Esi and Lina could be deemed promoters.
• They owe the company a fiduciary duty and good faith.
• All transactions entered prior to formations must be ratified by the company upon full disclosure to take the benefits.
• Until ratification or any agreement to the contrary, the person is bound by the transaction/benefits.
• The company can rescind such transactions, sue to recover any loss or damage etc.
• The documentation receipts should have appropriately be in the company name or at least in Lina’s name.
• All documents/transactions should have been signed for and on behalf of or executed in the name company.
• Esi is entitled to reimbursement of the $10,000 documentation expenses.
• Unless by mutual agreement, the employment or monthly salary is not payment for legitimate incorporation expenses.
• The company can recover the $2000 paid to Esi by the rental agent. It is a secret benefit and breach of her fiduciary duty.
• Esi should have made a full disclosure to the company for an independent board to allow her to keep it.
• The rental was done after incorporation hence not a pre-incorporation contract. But could be rescinded based on Esi’s inducement fee/profit.