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Law School Case Brief

Matter of Hausman - 2009 NY Slip Op 8854, 13 N.Y.3d 408, 893 N.Y.S.2d 499, 921 N.E.2d 191

Rule:

The formation of a de facto company requires a colorable attempt to comply with the statutes governing incorporation prior to the exercise of corporate powers, including the filing requirement. Where there has been an attempt in good faith to comply with the requirements of the law with respect to filing a certificate of incorporation and a certificate has been filed and there has been use of the corporate name, the corporation will be deemed a corporation de facto. However, the mere execution of a paper which is not filed and does not become a public record is insufficient.

Facts:

The executor, who was the decedent's son, and the decedent's daughter, had executed articles of organization for an LLC. The decedent executed a deed purporting to transfer real estate to the LLC. However, the articles of organization were not filed with the Department of State until two weeks after the deed was executed. The surrogate's court found that the LLC operated as a valid de facto company before the filing of the articles, and that the transfer of the property to the LLC was valid. However, the appellate court found that there was no bona fide attempt to comply with the requirement of filing the articles of organization before the attempted conveyance, and hence, no de facto LLC was formed. The executor challenged the decision of the appellate court.

Issue:

Did the decedent’s children form a de facto limited liability company (LLC) capable of receiving title to real property that was the subject of a deed executed by decedent shortly before her death?

Answer:

No.

Conclusion:

The Court affirmed the decision of the appellate court, holding that merely executing the articles and an operating agreement and nothing more was insufficient to meet the requirements of a de facto entity. According to the Court, because an entity that was neither de facto nor de jure could not have taken title to real estate, there was no entity in existence capable of receiving title to the property and the purported conveyance was void.

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