Black-letter propositions
- 01
Articles generally state name, authorized shares, registered agent, and incorporator information; corporate existence begins on filing unless delayed.
- 02
A promoter who contracts for a nonexistent corporation is personally liable absent contrary agreement or later novation.
- 03
The corporation can adopt a preincorporation contract expressly or through knowing acceptance of benefits but cannot technically ratify an act made before it existed.
- 04
A novation among promoter, corporation, and third party releases promoter liability.
- 05
De facto corporation and corporation by estoppel can protect against defective formation under limited good-faith and reliance circumstances.
Use this attack sequence under time
Frame the issue
Check filing and legal existence date.
Resolve the next checkpoint
Identify promoter act and contract language.
Resolve the next checkpoint
Analyze promoter liability, corporate adoption, and novation separately.
Finish the conclusion
Consider defective-formation doctrines.
Common wrong turns
- Corporate adoption does not by itself release promoter.
- A corporation cannot ratify an act predating its existence.
- Limited-liability expectations do not excuse ignored filing requirements.
Worked example
A promoter signs a lease 'for NewCo, Inc.' before filing; after incorporation NewCo knowingly pays rent for months.
NewCo adopted the lease by conduct, but the promoter remains personally liable unless the landlord agreed otherwise or a novation releases the promoter.
Practice this topic
Forming a corporation
Cornell defines a corporation as an entity that acts as a single fictional person that can sue, be sued, lend and borrow, and can transfer ownership through stock sales. State law governs, with many states following the Model Business Corporation Act. Articles of incorporation, also called the corporate charter, are the highest governing document. They generally state the purpose, the type and number of shares and the process of electing directors, and must be filed with the state.
Bylaws contain the rules regulating internal management, typically meetings, election of directors, officer responsibilities and dissolution procedures.
Promoters
Cornell defines a promoter in corporate law as the founder or organizer of a corporation who takes the initiative to create the business. A promoter does what is needed for incorporation, and the acts are then ratified by the formation of the board and its later conduct. The promoter is not always the incorporator, the person who signs the certificate.
NCBE's MEE outline lists pre-organization transactions as promoters' contracts and fiduciary duties, and subscriptions for shares.
Ratification by the board
Cornell's promoter entry says the promoter performs the conduct required to incorporate, and the promoter's acts are then ratified by the formation of the board of directors and its subsequent conduct. It says the term is mostly used in the context of incorporation. A corporation ratifies a promoter's preincorporation contract by adopting it, expressly or by knowingly accepting its benefits, and the promoter stays liable on it unless the other party agrees to a novation that releases the promoter.
Frequently asked questions
What is the controlling rule for corporations, promoters, and preincorporation contracts?+
Preincorporation contracts can bind the promoter and later the adopting corporation, but only novation or original agreement ordinarily releases the promoter.
What is a corporation?+
An entity that acts as a single fictional person that can sue, be sued, lend and borrow, according to Cornell.
What are the articles of incorporation?+
The highest governing document of a corporation, also called the corporate charter, filed with the state at incorporation.
What do bylaws govern?+
Meetings, the election of directors, officer responsibilities and dissolution procedures, according to Cornell's summary of corporate bylaws.
Who is a promoter?+
The founder or organizer of a corporation or business venture, who takes the initiative to create it.
Is the promoter always the incorporator?+
No. The incorporator is the person signing the certificate of incorporation, and the promoter is not always that person.