Introduction and Corporate Formation Flashcards
What is a promoter?
A promoter is a person who undertakes to form a corporation and to procure for it the rights, instrumentalities, and capital by which it is to carry out the purposes set forth in its charter (AOI) and to establish it as fully able to so do its business
* A person who acts on behalf of a corporation not yet formed
When does the corporation become liable on a promotor’s pre-incorporation contract?
The corporation becomes liable when it adopts the contract, which can be either:
* Express through a board resolution (i.e., meet and resolve to adopt pre-incorporation K)
* Implied by having knowledge of the contract and accepting its benefits
When does the promoter remain liable on a promoter’s pre-incorporation contract?
The promoter remains liable until there’s a novation, meaning:
* There is a brand new agreement between ALL parties whereby the corporation will replace promoter under K
* Before novation, both promoter and corporation are liable at the election of the third party
Who is liable on a contract if the corporation is never formed?
Just the promoter alone (personally liable)
What duties do promoters owe to the corporation?
Like partners, they are fiduciaries and owe the duty (to subscribers of stock, corporation, and shareholders) of:
* Loyalty–may never make a secret profit on dealings with own corporation
When may the corporation recover profits from the promoter?
(1) If the promoter acquires property before becoming a promoter and sells to a corporation at a profit, the profit is recoverable only if it is sold for more than FMV
(2) If the promoter acquires property after becoming a promoter and sells to a corporation at a profit, any profit is recoverable by C (“C may disgorge all profits”)
* TIP–use common sense; this is clearly more dubious
What is a subscriber?
One who makes an offer in writing to buy stock in a corporation not yet formed
Can a subscriber revoke their offer to buy stock in the corporation not yet formed?
NO–in VA, a pre-incroporation offer in writing to buy stock in a corporation not yet formed is irrevocable for 6 months
