Liability For Start Up And Duties In Creating a Corporation

When is a promoter liable for the terms found in pre-incorporation contracts?

A promoter is a person in charge of establishing a corporation, besides the Arizona Business lawyer.  The promoter’s duties may include finding investors, incorporating the business, and negotiating pre-incorporation contracts.  A pre-incorporation contract is a contract made in behalf of a corporation before the corporation is created.

Because the corporation does not exist at the time a pre-incorporation contract is made, the promoter, not the corporation, is bound by the terms of the contract.  However, when Arizona contract lawyers and other parties create a pre-incorporation contract, they usually intend the contract to be adopted by the corporation when it is formed.  When a contract is adopted by the corporation, the promoter is freed of the obligations of the contract.  A corporation adopts the contract if it accepts the benefits of the contract or if it replaces the old contract with a new one.

Pre-incorporation contracts can be risky for the promoter.  The promoter can be stuck with the contract if the corporation is never formed or if the corporation decides to not adopt the contract.  To prevent unintended liability, a promoter should consult with an experienced mesa attorney, such as the ones at Gunderson, Denton & Peterson, PC, who can assist in the incorporation of a business and in the creation of pre-incorporation contracts.