Pre-Incorporation

Question 1

Who are the actors in preincorporation?

Answer 1

• promoters
• subscribers
• incorporator

Question 2

Liability on preincorporation contracts?

Answer 2

Corporation = liable if contract adopted

• express adoption
• implied adoption: knowledge of contract; AND acceptance of benefits without protest

Corporate adoption does not relieve promoter’s liability

Promoter Liability = liable unless novation or express relieved of liability in K
• Novation = all parties agree to substitute the corporation for the promoters as the party liable for the contract
• Corporation never forms = novation impossible
• Adoption but no novation = liable but entitled to indemnification

Question 3

When is a corporation liable for preincorporation contracts?

Answer 3

Corporation = liable if contract adopted

• express adoption
• implied adoption: knowledge of contract; AND acceptance of benefits without protest

Question 4

What does a corporate adoption do to a promoter’s liability?

Answer 4

Corporate adoption does not relieve promoter’s liability

Promoter Liability = liable unless novation or express relieved of liability in K
• Novation = all parties agree to substitute the corporation for the promoters as the party liable for the contract
• Corporation never forms = novation impossible
• Adoption but no novation = liable but entitled to indemnification

Question 5

Promoter’s liability for preincorporation contracts?

Answer 5

Promoter Liability = liable unless novation or express relieved of liability in K
• Novation = all parties agree to substitute the corporation for the promoters as the party liable for the contract
• Corporation never forms = novation impossible
• Adoption but no novation = liable but entitled to indemnification

Question 6

What is novation (for a promoter and corporation)?

Answer 6

All parties agree to substitute the corporation for the promoters as the party liable for the contract