Corporate Formation

Question 1

Pre Incorporation Transactions

Answer 1

For incorporation transactions:
1. There is generally Promoter liability; and
2. There is generally no Corporate liability
3. An incorporator is not liable

Question 2

1. Promoter liability

Answer 2

Generally, A promoter is personally liable for pre incorporation transactions, even after the corporation comes into existence, unless a subsequent novation releases the promoter from liability

Question 3

Exception to Promoter liability

Answer 3

If a third party with whom the promoter makes a contract on behalf of the Corporation knew that the incorporation has not occurred, the promoter will not be liable

Question 4

When will a promoter be indemnified?

Answer 4

When
1. The corporation adopts the contract; And
2. When no novation occurs

Question 5

Can a promoter be liable for breach of fiduciary duty ?

Answer 5

Yes

Question 6

2. The Corporation liability

Answer 6

Generally, the corporation is not liable for incorporation transactions even if made for the benefit of the corporation

Question 7

When will a corporation be liable for a pre-incorporation transaction ?

Answer 7

When it expressly or impliedly adopts a contract by
1. Expressly or impliedly accepting the benefits of transaction; OR
2. Gives an express acceptance of liability for the debt

Question 8

3. Incorporator liability

Answer 8

An incorporator is a person who signs and files the articles of incorporation with the state and is not liable for a contract entered into by a promoter.