Other Formation Issues

Question 1

Promoter

Pre-incorporation liability

Answer 1

A promoter acts on behalf of a corporation that is yet to be formed.

A promoter is personally liable for any contracts entered itno on behalf of the corporation so long as both parties to the transaction know that the corp. has not yet been formed.

Question 2

When will a promoter not be held persoanlly liable?

Answer 2

1. there is novation where the parties agree to release the promoter from liability in favor of holding the corporation solely liable
2. the promoter is able to obtain indemnity from the corpoation

Question 3

When is a corporation liable for pre-incorporation contracts?

Answer 3

A corporation is NOT bound by any pre-incorporation contracts that were entered into by a promoter UNLESS the corporation adopts such contracts. An adoption can be express or implied from the actions of the corporation or its agents.