Promoters

Question 1

Promoter (Definition)

Answer 1

A promoter is one who acts on behalf of a corporation in formation.

Question 2

Types of Promoter Issues

Answer 2

Where someone is making contracts for the corporation before it is incorporated.

Question 3

Stock Subscriptions

Answer 3

Where the promoter enters into a contract with persons interested in becoming shareholders.

Question 4

Promoter Duties

Answer 4

Upon incorporation, promoters owe fiduciary duties to the corporation and the shareholders.

The duty is one of fair disclosure and good faith.

A promoter who profits on the sale of the property of the corporation may be liable to the corporation for the profit, or may be forced to rescind the sale, unless the promoter has disclosed all of the material facts of the transaction.

Question 5

Promoter Disclosure (When Profiting)

Answer 5

Disclosure must be to all shareholders and must include those persons contemplated as part of the initial financing.

Question 6

Promoter Liability

Answer 6

The promoter is jointly and severally liable for any liabilities, even after formation, unless the third party enters a novation that expressly relieves the promoter of liability. The corporation is not bound by any pre-incorporation acts of the promoter.