MBE Rules · Business Associations
Corporate Formation — De Jure/De Facto/Estoppel
Cal. Corp. Code § 200
The rule
A de jure corporation is formed by filing valid Articles of Incorporation. A de facto corporation arises where the incorporators made a good-faith attempt to comply and acted as if incorporated. Corporation by estoppel prevents a party who dealt with an entity as a corporation from denying its existence.
In plain English
A de jure corporation is legally recognized because it has filed the necessary Articles of Incorporation. A de facto corporation exists when the founders tried to incorporate in good faith but failed to meet all legal requirements, while corporation by estoppel prevents someone from denying a corporation's existence if they treated it as a corporation in their dealings.
Worked example
A group of entrepreneurs filed Articles of Incorporation but forgot to pay the filing fee, so their corporation was never officially recognized. However, they conducted business as if they were a corporation, and a supplier extended credit to them. When the entrepreneurs later tried to deny their corporate status, the court recognized them as a de facto corporation, allowing the supplier to recover their debts.
Memory hook
Incorporation: De Jure is by the book, De Facto is by the try, and Estoppel says 'you can't deny it!'
The trap
Exams often present scenarios where students must distinguish between de jure and de facto corporations, leading to confusion about what constitutes a good-faith effort. Students may overlook the implications of corporation by estoppel when dealing with third parties.
How examiners test it
Questions typically involve fact patterns where a corporation's status is in dispute, requiring students to analyze the actions of the incorporators and the treatment of the entity by third parties.
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