(business law)organization and financial structure of corporations - Case Study Example

Business law: Organization and financial structure of corporation Rose signed articles of incorporation in December 1989 and entrusted Flaherty with the document for formation of R&F Capital Corporation. Flaherty did not file the documents until February 1990, a month after Rose had entered into a contract for lease of Sivers’ warehouse as the chair of R&F Corporation. R&F breached the contract and Sivers claimed that Rose was liable because he ought to have been informed of the corporation’s status at the time of the contract.

Rose and a co-director however testified that they believed the organization was already incorporated at the time. IssueThe issue to be determined is whether a director, who acts on behalf of a company before it is incorporated, but in good faith and on the knowledge that the organization is already incorporated, is liable for the actions. RuleApplicable rule of law to the case is the Revised Model Business Corporation Act that states that parties that assume actions as agents of a corporation with the knowledge that the subject organization has not been incorporated are liable for their actions (Mallor, Barnes, Bowers and Langvard, 2012).

ApplicationThe rule is suitable for determining the case because its provisions cover facts of the case. R & F Corporation had prepared its articles of association for filing and Rose was the chair of the corporation’s board and therefore acted on behalf of the organization, contracting for the lease of the warehouse. While the act protects parties to a contract with agents of a corporation who acts before the filing of the corporation’s documents, it protects individuals who act in good faith, especially with the knowledge that the organization is already legally incorporated.

Determining the case therefore requires proof of whether or not, Rose acted in good faith, and whether or not, he was aware of the incorporation status of the organization.The testimony by Rose that he acted believed the organization was already incorporated was supported by a co-director to R & F Corporation and this establishes validity of his limited knowledge. His position as the corporation’s chairman that identified responsibility of signing the board’s resolution further suggest that his actions were undertaken within his jurisdiction and for the interest of the corporation and the co-director’s testimony supports this.

The facts of the case that indicates a long delay in filing the signed articles also justifies Rose’s testimony that he believed the documents had already been filed. The position that Rose held in the organization, board chair, that did not deal with routine activities and could therefore not inform him of the date of filing of the document, also proved that he could have acted on the knowledge that the organization was already incorporated. Sivers also failed to prove that Rose was aware of the incorporation status but instead relied on the assumption that Rose should have been aware.

Rose therefore established that he acted within the knowledge that the organization was already incorporated while Sivers failed to prove otherwise (Mallor, Barnes, Bowers and Langvard, 2012). ConclusionBased on the Revised Model Business Corporation Act, a party is liable for actions taken on behalf of an organization prior to its incorporation, if the party knows that the organization is not yet incorporated. The case however established that Rose believed that F &R Corporation was already incorporated and Sivers failed to prove otherwise.

Rose was therefore not found liable on the lease. ReferenceMallor, J., Barnes, A., Bowers, L. and Langvard, A. (2012). Business law. New York, NY: McGraw-Hill Education.