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What is the Purpose of your Corporation? – A Brief Look at the Doctrine of Ultra Vires

Many states have created a standardized document for forming a legal entity. These standardized forms were created partly to prevent lawyers from drafting and submitting extremely long incorporation documents and partly as a way to create ease of use for the general public. Most standardized forms contain a section for the name of the entity, the name of the resident agent, the name of the officers and/or directors, and a section for the corporate purpose.

We are going to take a closer look at the “purpose” section of an entity formation document. Today, lawyers generally use broad language such as, “any lawful purpose” in the purpose section of these documents. However, such was not the case many years ago. Incorporation documents used to be drafted with a very specific corporate purpose. As such, the doctrine of ultra vires was created by the courts. The doctrine of ultra vires was the cause of much litigation and judicial interpretation. The dictionary definition of ultra vires is “beyond the legal power or authority of a corporation, corporate officer, etc.” It is important to note that this doctrine, although traditionally applied to corporations, applies to all types of legal entities.

In plain terms, the doctrine of ultra vires applied to the “purpose” of corporate formation. For example, if a corporation was formed for the purpose of laying railroad tracks, that corporation could not engage in any other business. This makes sense if you think about it, but you can only imagine the limitations such a doctrine creates in this modern age. Today, corporations engage in so many different types of businesses and investments that if this doctrine was statutory majority law, instead of common law minority, you would see many more lawsuits due to a company’s participation in an enterprise that was not originally committed to paper in that pesky “purpose” section in the articles of incorporation.

The ultra vires doctrine was used both by the corporations and by other contracting parties. The problem with this doctrine is that it was easy to abuse. For example (using the same railroad laying track example above), if a corporation stated on its articles of incorporation that its purpose was to lay railroad tracks, the corporation was limited to pursuing only that business. Let us say that this corporation entered into a contract to manufacture railroad tracks. According to the doctrine of ultra vires, the corporation was prohibited from doing this. However, a court could only get involved if one of the parties complained. Therefore, as long as everybody got along, it technically did not matter that the corporation was conducting business beyond the limits of its stated purpose.

However, problems arise when a party wants out of the contract. For example, let us say that the railroad laying company is losing money on the contract for the manufacturing of railroad tracks. If the company wanted, it could get out of the contract by using the doctrine of ultra vires. It could argue that although it freely entered into the contract, it could repudiate the contract by stating that the doctrine of ultra vires prevented it from performing under the contract (in other words, the corporation was prohibited from manufacturing railroad tracks). The irony of this is that the other party that entered into the contract could assert the same thing if he/she/it wanted out of the contract. Basically, both parties in this example had a sure fire way out of a losing contract.

The dangers, pitfalls, and areas of abuse were wide. Additionally, you could see how this doctrine could create very unjust results. Two parties that freely entered into a contract could essentially screw the other if one was losing money. Due to this inherent unfairness, the doctrine has fallen out of favor. However, the doctrine is not nonexistent.

Lawyers combat this doctrine by creating a very broad “purpose” section. For example, as I stated above, usually lawyers use the “any lawful purpose” language when drafting a purpose section. However, you must be careful. Some state laws prevent the use of such broad language. Additionally, using broad language is not a guarantee against a lawsuit. Your safest bet is to know your local laws, draft broad purpose statements, and write a solid contract. So, for all of you entrepreneurs that want to form a legal entity, make sure your draft your articles correctly and carefully because something as simple as a “purpose” section can end up destroying a future contract!

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Credit Score Loophole Closes

As we are all well aware, a good credit score is an important asset to possess. Not only does a good credit score save you thousands on interests payments, it is also an essential item needed to qualify for most loans.

It order to help out close friends and family (usually children), people put a specific person on their credit card as an “authorized user.” An authorized user is authorized to use the card, but is not liable for the card’s debt. Before recently, credit card reporting companies (Experian, TransUnion, and Equifax) did not distinguish between the original card holder’s credit record and the authorized user’s record. Therefore, for example, if the original cardholder had a flawless ten year record on a particular card, the authorized user receives the benefit of this flawless record regardless of the length of time the authorized user is on the card. The benefit to the authorized user is huge. These benefits to the authorized user’s report could boost his/her credit score upwards to one hundred (100) points. This practice is known as “piggybacking.”

This is all about to change. Recently, the Fair Isaac Corporation, the company behind the FICO credit scores, reported that it was going to stop giving these benefits to authorized users. It was reported that certain internet sites started selling the rights to great credit reports. In other words, people with great credit would sell the right for other people to be listed as an authorized user on their card. This caused problems for lenders because they were unable to accurately gauge the credit risk of a person. Due to these complications, the above action will be taken starting in September of 2007.

Fortunately, this is not all bad news. Although the authorized user loophole is going to be closed, a second person can still receive the benefits of another’s credit history by adding the other person as a “joint user.” Unlike an authorized user, a joint user is liable for the debt on the card. However, if you are a responsible credit user, the joint user should have nothing to worry about. The joint user still gets the benefit of the entire credit history of the original card holder. Therefore, if you want to give your kids, your spouse, your other family members, or your friends a credit boost, you still have the option to add them as joint users. This option could also help business partners.

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Multiple Streams of Income: The Internet Part 10

Recently, there has been a large emergence of Adsense revenue sharing websites. The concept is simple. Like many other websites, you submit content (articles, videos, podcasts, blog entries, pictures, etc.). The difference with the regular websites is that the webmaster takes one hundred percent (100%) of the Adsense revenue. You get the benefits of backlinks, reputation, and traffic building, but you do not actually share in any of the advertisement revenue.

With Adsense revenue sharing websites, you still get the backlinks, reputation, and traffic building benefits of other content submission websites, however, these revenue sharing websites also give you a percentage (usually fifty percent (50%) or more) of advertising revenue. These websites are easy enough to find and usually have a submission procedure similar to the other content submission websites.

Here is how it works. For each piece of content you submit, you get one (1) point. The more content you submit, the more points you get. Usually, you have to submit a certain amount of content before you can earn your percentage of advertising revenue. The more content you submit, the more your articles will show up and thus the higher percentage you have of getting paid, and the more you get paid.

You may be wondering how these websites track your Adsense advertisements. All of these websites have a section where you submit your Adsense publisher ID. This may freak you out, but can be worth it in the long run. This is allowed by Google, and can be safe if you do a little research into the websites to which you are submitting. Be careful about who you give your Adsense publisher ID to because you do not want your ID to be misused.

Ultimately, the choice of whether or not to participate in these websites is up to you. These websites are just like other content submission websites except you can make more money. If you do a little research and make sure the websites are credible, you literally have zero risk.

I have one last note for you. Although other advertisement programs (such as Adbrite) exist, I have only seen revenue sharing websites use Google Adsense. Therefore, if you do not have a Google Adsense account yet, I suggest you get one ASAP. Sign up is easy and your website will be reviewed quickly. Just know that there is a waiting period before you get an Adsense account.

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Piercing the Corporate Veil

Piercing the corporate veil is a fancy phrase that means that somebody or something is attempting to hold the shareholders of a corporation personally liable for the corporation’s debts. Veil piercing is not an easy task and requires many factors to be proven. The main inquiry is, “has the corporate form is being misused?” If it is concluded that the corporate form is being misused, the court will disregard the corporate entity and hold the shareholders personally liable.

Each state has different factors that in considers in determining whether to pierce the corporate veil. It would be inefficient to list all the various laws from all fifty (50) states, however, I will discuss some common factors.

Undercapitalization is a commonly considered by most states. Undercapitalization means that the corporation was not equipped with a reasonable amount of capital for the nature of the business involved. What is reasonable? If there was a clear answer to that, there would not be a need for lawyers! Reasonableness depends on many factors including type of business, size of business, etc. If a corporation is undercapitalized, this weighs in favor of the court piercing the corporate veil.

Another commonly considered factor is the failure to observe corporate formalities. Like I stated in previous posts, failure to observe corporate formalities will tip the scales towards the court piercing the corporate veil. Corporate formalities need to be observed by all corporations (except a close corporation).

Lastly, most courts consider whether a corporation was used to promote fraud, injustice, or illegalities. Let me put it this way, if you use the corporation to engage in illegal activity (for example, defraud somebody out of money or other valuables) the court will most likely pierce the corporate veil.

It is important to note that these are just some of the commonly considered factors. Every state has a different set of factors, therefore, check your local laws. Also, no one factor is controlling. Therefore, veil piercing does not turn on the absence or presence of a single factor. Last, even though no one factor is controlling, the factors are not weighed evenly. Factors such as illegal use weigh more than whether or not corporate formalities were observed.

Once again, this post is intended only to give you a brief overview of some corporate issues and in no way constitutes legal advice or a legal opinion. Always consult a professional before attempting anything stated above.

The Corporation

The corporation is probably the mother of all limited liability entities. The case law is vast and the complexities are many. However, a corporation can be a great business form if you know what the differences between the various corporations are.

As I stated in a previous post, corporations are subject to double taxation. A dollar earned by the corporation is taxed once as a corporate earning and then taxed again upon distribution to shareholders. However, this is not true for all types of corporations. An S-corporation (named after sub-chapter S in the relevant IRS code) is a pass-through entity. This means that the corporation is taxed as a partnership. Therefore, no double taxation! Unfortunately, with benefits come disadvantages. I do not have the code book open in front of me, but I think some of these disadvantages include, amongst other things, limitations of the number of investors you can have (I think you can only have seventy-five (75) investors for an S-corporation), and limitations on who can invest (no other entity, such as another corporation or limited liability company, can be a shareholder).

Keep in mind that when you form your corporation with articles of incorporation, filed with your Secretary of State, you do not form an “S-corporation.” Subchapter S status is received from the IRS, not your state! However, some states require that you state your intention to be an S-corp. in your articles of incorporation. Therefore, check your local laws!

A close corporation is the same thing as an subchapter S corporation, but with stricter limitations (for example, I think some close corporations can only have thirty-five (35) investors). A great advantage exists with close corporations. Close corporations do not have to engage in corporate formalities. Why is this important? When somebody sues the corporation and tries to pierce the corporate veil (meaning the claimant is trying to “pierce the veil of limited liability” and hold the shareholders personally liable), one factor, of many, the court considers in determining whether to pierce is whether the corporation engaged in corporate formalities. If a corporation engaged in corporate formalities (conducted annual meeting, recording minutes, etc.) this supports the conclusion that a corporation did not misuse the corporate form and, therefore, is less likely to have its “veil” pierced. If you have a close corporation, corporate formalities do not have to be conducted, and a court cannot hold that against you should any lawsuits arise.

A closely held corporation is a term of art. There is no special filing or advantage to a closely held corporation. A closely held corporation is one in where the shareholders and the directors are the same people. Usually about five shareholders will exist, and each will also be a director, if not also an officer, of the corporation. In case you are wondering, shareholders elect directors and directors elect officers.

This post is intended to give you a brief overview of some of the corporate forms that exist. Like always, check with a professional before trying to form one of these entities by yourself.


The Types of Business Organizations Part 2

The other type of business organization is the limited liability organization. These entities can take many forms. These forms are: (1) a limited liability partnership; (2) a limited liability company; (3) a limited liability limited partnership; and (4) a corporation. Note that there are various forms of corporations (such as an S-corporation, a close corporation, and a closely-held corporation), but these are conversations for another day.

Like the unlimited liability entities, these limited liability entities have pros and cons. First, and most obviously, these limited liability companies, as the name suggests, limits your liability. You are liable (some exceptions apply such as piercing the corporate veil) only up to the amount of your investment. Therefore, if you investment two thousand dollars ($2,000) into a corporation, and the company has debts, you are only liable up to your two thousand dollar ($2000) investment.

Second, all of these entities, except a corporation, are not subject to double taxation. Unfortunately, a corporation is subject to this double taxation. For example, if the company makes X amount of dollars, the corporation is taxed on these dollars. In addition to be taxed on that money, any distributions the corporation makes to shareholders is also taxed. Therefore, the same dollar is getting taxed twice.

Last, it is easier to raise capital because you can sell interests in these entities. Whether in the form of stock or units, these entities have a more effective way of raising capital as compare to the unlimited liability companies.

These positives also have some negatives. First, management is not as easy. Most of these entities have various levels of managements (including board of directors and officers) and have to accomplish various formalities (such as annual meetings, recording minutes, and elections by shareholders). These management levels and formalities can slow down progress and may cause conflicts between managers with differing points of views and interests.

Second, many filing fees exist. In addition to having to file a certificate of registration (for a limited partnership), articles of organization (for a limited liability company), or articles of incorporation (for a corporation), you have to file certain papers designating a resident agent and provide annual lists. Additionally, some states may not allow some of these entities to be formed (specifically a limited liability company and a limited liability limited partnership), therefore, you need to check you local laws. All of these requirements can cost hundred, if not thousands of dollars, to file.

Last, there can be conflicting interests (between shareholders, managers, and officers) as to who gets what money. These competing interests can lead to voting issues and well as possible lawsuits. Both of these will cost time and money.

Like with the pervious post, you need to consult an attorney before you try to form any of these entities by yourself. This post is intended to give you a brief overview of some limited liability companies so that you know of some options that exist for your present or future business.

The Types of Business Organizations

Business entities can be distinguished into two different categories: (1) unlimited liability entities; and (2) limited liability entities. In order for you to have a better understanding of these various entities, this post will be broken into two parts. This part will discuss unlimited liability entities.

Unlimited liability entities mean that in the even that you get sued, a claimant has the possibility of recovering against all of your assets. You are not personally protected if you form an unlimited liability entity.

Two types of unlimited liability business entities exist: (1) a sole proprietorship; and (2) a general partnership. You may be wondering why somebody would set up one of these entities. If you can be held personally liable for all judgments against your business, what is the advantage of forming one of these? Although a person may be held personally liable, there are some advantages to setting up one of these entities.

First, no filing requirements exist with either of these entities. This is great because you literally save hundreds, if not thousands, of dollars. States require a filing fee and the execution of certain documents for other entities, however, these two unlimited liability entities require neither.

Second, both of these entities are very easy to operate. There are no board of directors, no stock holders, and no other level of management except you. This creates a very easy management situation because you only have you to answer to.

Last, these entities do not have the problem of double taxation. In other words, any money the company makes is not taxed separately from the money is distributes. The money saving tax advantage to this is obvious.

Unfortunately, some negatives exist in forming these types of entities. First, and most obviously, you are unlimitedly liable for all debts and judgments. This can literally financially ruin you.

Second, raising capital can be difficult. You cannot sell shares of stock because there are no shares. Usually, you bring all of the money to the table or you have to take on a partner in order to receive capital.

Last, you cannot transfer your interest in these entities. In other words, you cannot sell your ownership in these companies. The effect of selling your interest is the dissolution of the previously existing entity. For example, if you owned a corporation, you could sell your stock to whomever you want (and thus in effect, sell your ownership interest in that company) without creating a dissolution. The same is not true with these unlimited liability entities.

The previous was just a brief overview of some of the various entities you can form. Do not dive head first into forming a company. Although they offer various business and tax advantages, you will probably want to talk with a lawyer before forming anything.

Article Submission List Part 14

If you want to add pictures to your article submissions, be aware that not that many article submission sites allow you to do this. As I stated in Part 13, many sites disable html and other programming code in the “body” part of the article. Therefore, a picture code will not appear as a picture. If the site you are submitting to disables code in the body portion, just make a reference to the picture near the relevant information in your article. For example, state, “See picture at”

Another way to tackle the problem is to put the picture in your resource box. However, the down side to this is that sites usually allow only two links in a resource box. This means you will have to sacrifice a link to your website in order to install the picture. The choice is up to you.

Anyway, here they are:

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Article Submission List Part 13

Make sure that you html code is correct. The worst thing you can do is submit all of your articles to all of the sites and then find out that your link is dead. A dead link prevents you from getting backlinks. The various search engines’ (Google, Yahoo, etc.) web-crawlers follows all the links on the pages. How can it follow a link if it is dead? Make sure your links work!

Anyway, here they are:

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Article Submission List Part 12

Upon submitting your articles, make sure that you put your links in the appropriate resource box. Many sites disable html code in the article body. If you try to put a link in this part, your article will most likely be rejected. Additionally, your article, if accepted, will look like junk because your paragraph will be broken by unrecognized code. Therefore, put your code in the correct place!

Anyway, here they are:

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Article Submission List Part 11

When you sign up for all of these websites, it might be a good idea to use the same user name and password. By using the same username and password, logging in to all of these sites, (there are at least two hundred) will be far easier. If you can remember two hunder different passwords, or have the discipline to keep records of two hundred plus passwords and websites, then use a different password. Another option would be to change your password by groups. Anyway you do it (because we are dealing with such a large number of websites and submissions) have a plan so that changes and updates will be easy.

Anyway, here they are:

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Article Submission List Part 10

When submitting articles to all of these sites, you might want to create a separate e-mail account specifically for that purpose. Usually, you have to provide an e-mail address when you sign up for these sites. Additionally, many of the webmasters will send you special promotions from their article submission site. If you like your personal e-mail to be seperate from your business e-mail, then creating a separate e-mail will be in your best interest. Not all of these article submission sites will send you additional e-mail besides your confirmation e-mail upon sign-up, however, it is easier, in my opinion, to keep things separate.

If you do not want to go through the whole process of getting a new e-mail address (it really does not take a lone time), then at least create a separate folder in your current e-mail program so that everything is organized.

Anyway, here they are:

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Article Submission List Part 9

Here is part 9 of the submission list. Make sure you keep track of all of the websites to which you submitted and the websites you did not. You have to keep track because almost all of these submission sites do not immediatley approve your article submissions. You will have to go back to all of these sites so that you can make any changes necessary to fix a declined submission. Keep good records and fixing problems will be a snap.

Additionally, keeping track of your website submissions will make it easier to track your article hits. By tracking how many hits or reads each respective article is receiving, you will be able to get statistics on which of your articles is most popular and which articles need work. By revising and fixing articles that do not receive many hits, you will be able to write better content and ultimately, make more money!

Anyway, here they are:

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Article Submission List Part 8

Here is part 8 of this article submission list. In addition to checking to see how many members or writers exist on each site, you must also check traffic reports and Google PageRanks. will give you all the traffic information you need on these sites. In order to check Google PageRank, you have to have the Google Toolbar installed. To get the Google Toolbar just search the terms "Google Toolbar" in your search engine.

Anyway, here they are:

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Article Submission List Part 7

Here we go again. Some more websites for you all to submit articles. I would love to be able to tell you when this list will end, but the truth is, I do not even know. The list keeps growing, but this is actually good news. The more sites that exist, the more chances you have for submission and thsu the more backlinks you will get.

Here are some more sites:

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Article Submission List Part 6

If you are to this point in your article submissions, congratualtions. The bad news is, there are many webistes yet to go. The good news is that your articles are already starting to build backlinks, and your reputation. If you submit your articles to Adsense revenue sharing sites (lists to come later), you can start making some money immediately without people visitng your website.

Anyway, here are some new article submission websites for today! Submit, get some back links, make some money!

Here they are:

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Article Submission List Part 5

Here are the latest entries in for Article Submission websites. Keep plugging away and build your backlinks! In order to stay motivated, imagine all the money you will be making! Also, if you are at this point in your submissions, you may have noticed that many article submission websites look the same. The reason for this is that allows anybody to download the software (for free) necessary to create an article submission website (not free). This is a great way to build a list, generate new business leads, and to create a another income "trinutray" (if you will).

Anyway, here they are:

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Associated Content Updates

If you have yet to check out, you are missing out on easy internet dollars! This company pays you up front for your articles and then gives you what is called a "performance bonus" for the page views your articles receive.

Currently, they are having a "call for content." On the particular call for content they are currently having, accepted submissions will get offfers for around $8.00+! This is a great way to make some fast, extra income on the web.

Check out today!


Senserely Updates

Senserely has put out a new Adsense Revenue Sharing website. The name of the site is Adsensiig. Simply put, AdSensigg = AdSense + DIGG

It means the site is a DIGG-like with an AdSense Revenue Sharing
Program, so you get to promote your blogs/websites and you earn from
page views.

Another great way to earn internet dollars! Check out today!


Mylot Updates

Have you checked out Mylot yet? Mylot now has over 95,000 members! The number grows dramatically every day! The discussions are great and best of all you get PAID to participate.

You must be wondering if there is a catch. The truth is, there is no catch! Sign-up is free, you get 25% of all the revenue generated by the people who you refer to sign-up for Mylot , and you can drive traffic to your blog or website for free!

Check out Mylot today and start making some extra money just for participating in discussions, posting pictures, and talking about your blog or website! What do you have to lose?


Article Submission List Part 4

Article submission = Money! I know it can be difficult to submit to all of these sites, but you gotta do it to make some MONEY!!! When submitting all of your articles to the various websites, check to see how many members or writers have submitted content. If very few people have submitted content, this is evidence of one of two things: (1) the website is new and not yet established (which is not a bad thing); or (2) the website sucks, meaning that it does not promote or try to get indexed because the webmaster's sole purpose is to build a mailing list to send you e-mails. Use your better judgment when deciding to submit to a site like this.

Anyway, here they are:

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Article Submission List Part 3

Here is the third part of the list. Remember, article submission = money. Stay the course and SUBMIT!

Here they are:

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