Promoters and Preincorporation Transactions

Question 1

Duties of Promotor

Answer 1

1. Fiduciary duty to the corporation and any other co-promotors
2. Investory he antcipates will participates in the venture when formed
3. Fiduciary duty to disclose fully all material facts concering any assets they sell to corporation

Question 2

Promoter Liability Rule

Answer 2

Makes promoters personally liable for contracts sign before incorporation that he signs in her name, or in the name of the corporation

Question 3

When will promoter not be liable?

Answer 3

1. If there is a novation; OR
2. If there’s an agreement to release liability

Question 4

Novation

Answer 4

A novation occurs if all parties agree to a substitution of the corporation as the party to the contract, in place of the promoter

Question 5

When does a corporation adopt preincorporation contracts?

Answer 5

1. When it expressly adopts the agreement the promoter entered into
2. Implied adoption – there are facts that the board is aware of the contract; the board by conduct and awareness has adopted the contract

Question 6

Preincorporation Expenses

Answer 6

Corp has no legal obligation to pay pre-incorporation expenses