De facto corporation is a legal term used to describe the conditions under which a corporation is established.
It is used in contrast to a de jure corporation. A de jure corporation is one that has fulfilled all requirements and has been established according to the regulations set by the governing authorities of the country or state.
De facto corporations, on the other hand, operate as regular corporations, but without compliance to legal requirements. If a corporation is considered de facto, it is still treated as corporation, which means that shareholders are protected from liability. However, to be considered as such, a corporation must fulfill certain conditions.
First of all, an incorporation statute must be set in place. This should include the requirements that are necessary for legal incorporation. At the same time, the corporation must be able to establish the fact that an attempt has been made to comply with this statute. This includes the circumstances which prevented the success of the attempt before the corporation started official operations. If these conditions are present, then the business can be treated as a corporation.
On the other hand, corporation by estoppel describes a situation in which a business is treated like a corporation, even if no attempts in good faith have been made in order to legally incorporate it. Therefore, should a case be filed against a business which falls under this category, its shareholders may not be afforded the same protection from liability as it would have been if it had de facto status.