Corporation by estoppel

Section 21 of the Corporation Code provides: "Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation."

Estoppel may exist to bar the corporation, the persons composing it or a third person transacting with it from saying that there is, in fact, no such corporation. The test is "fraud" or "benefit".

Where a group of persons misrepresent themselves as a corporation, they are subsequently estopped from claiming lack of corporate life in order to avoid liability. Also, a third party who had dealt with an unincorporated association as a corporation is precluded from denying its corporate existence on a suit brought by the alleged corporation on the contract.

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