What Is a De Jure Corporation?
A de jure corporation is a fully incorporated company. To be considered de jure, the company must have fulfilled all of the statutory requirements for properly forming a corporation. An entity gains many advantages from becoming a corporation such as easier access to capital and limited liability.
The process of incorporation can be complicated; business owners are advised to obtain legal advice to ensure they have the limited liability they seek and are not at risk of having their corporate status challenged.
Understanding De Jure
De jure corporations have better access to capital and are granted limited liability under the law, which means that the owners are protected in the event of bankruptcy. However, the paperwork required to become a de jure corporation can be complex, and new companies should seek legal assistance to ensure that they are not exposed to additional liability during the incorporation process.
- A de jure corporation has fulfilled all the statutory requirements to be a valid legal entity with limited liability protection.
- In some cases, a company might fail to meet all of the statute requirements but might be awarded de facto protection.
- A company might receive Estoppel protection if it has been doing business with a firm that has assumed it is a de jure company. The assuming firm cannot then later challenge the corporate status of the firm with which it has been doing business.
Types of Limited Liability Protection
Once a company is considered de jure, the corporate state of the company cannot be challenged by other companies, individuals, or the state. A de jure corporation that has met all of its statutory requirements is granted limited liability protection under the law.
De Facto Protection
A company might take steps to become incorporated but fail to meet all statutory requirements. In this case, the company can be challenged by other companies, individuals, or the state. The corporation's owners or directors will not be protected if challenged by the state in a quo warranto proceeding but will be protected against third parties.
Being recognized as a de facto corporation shields the owners from personal liability. A corporation might be deemed de facto and be provided protection from a challenge by a third party if the following apply:
- The state must have a statute whereby incorporation is legally possible (Florida)
- The entity has made some attempt to comply with the statute
- The company shows the use of some corporate privileges
Most entities seek de jure corporation status because it affords limited liability for directors, officers, and shareholders, which means they are shielded from personal liability for the corporation's obligations.
Corporation by estoppel is another common law doctrine that is designed to provide some protection to the officers and shareholders of a company that is not properly established and that cannot be considered either a de jure or de facto corporation.
If an individual or company has been doing business with an entity in a manner that suggests they assumed the business was a corporation, that individual or company cannot later deny the corporate status of the company with which they did business.