Preincorporation Transactions

Question 1

Promoter

Answer 1

One who causes a corporation to be formed, organized, and financed

Question 2

Promoters relationship to corporation

Answer 2

Fiduciary relationship to the corporation, duty to avoid self-dealing re: assets they sell to corporation

Question 3

Promoter’s relationship to other promoters

Answer 3

Promoters are joint venturers and owe each other a fiduciary duty

Question 4

Preincorporation contracts: liability of promoter

Answer 4

Promoter personally liable for contracts entered on behalf of nonexistent corporation, unless: valid novation or agreement to release liability

Question 5

Preincorporation contracts: assume liability

Answer 5

Corporation can assume preincorporation agreements if: contract made for corp’s benefit, corp can legally contract, and full disclosure to board

Question 6

Preincorporation contracts: Novation

Answer 6

all parties agree to substitute liability of corp for promoter

Question 7

Preincorporation contracts: adoption

Answer 7

If corp adopts contract, promoter remains liable but will be entitled to indemnification. Can be express or implied.