Liability of Promoters During Pre-Incorporation Contracts
4690 WordsOct 2nd, 201219 Pages
Topic: Liability of Promoters During Pre-incorporation contracts
Table of Contents Introduction 3 Research Methodology 6 Research Questions 7 Chapter 1: Promoters and Pre-incorporation Contracts 8 Chapter 2: Fiduciary duty of the promoter 11 Chapter 3: Breach of the pre-incorporation contract and the Liability of Promoters 13 Conclusion 19 Bibliography 20
A company is an entity which is recognized and created by the law. It can only contract when the law deems it to come into existence. This is the time when the company receives whatever powers the law and its constitution accords to it.
Until a company is registered it has no existence of any kind. Many a times, promoters wish to enter into contracts which are…show more content…
Substantive material from the internet has also been referred to.
Scope and limitation
Even though the concept of the liability of the promoters for pre-incorporation contracts is a very vast concept which requires a theoretical line of thinking to understand it but it is not practically possible to deal with all the sub-topics in great depth as a part of this paper. So the research has been limited to the scope as to how far can the promoters be liable for the pre-incorporation contracts and what are the consequences that follow from the breach of it.
* To what extent does the Liability of the Promoters exist with regard to Pre-incorporation Contract? * How far can the promoters be held responsible for the breach of Uberima fides relation between the Company and the Promoter?
Chapter 1: Promoters and Pre-incorporation Contracts
Before a company commences business, it has to enter into several contracts and incur several initial expenses. Contracts which are entered into by promoters with parties to acquire some property or right for and on behalf of a company yet to be formed are called as ‘pre-incorporation contracts’ or ‘preliminary contracts’.
The promoter is obligated to bring the company in the legal existence and to ensure its successful running, and in
A pre-incorporation agreement is entered into by the corporate promoters, who form the company by filing its Articles of Incorporation. Since the corporation has not been formed yet, it cannot be a party to the agreement. If the corporation is not formed or if it fails to adopt the agreement, the promoters can be held personally liable for any breach of the agreement.
The agreement should state the corporation's intended legal name. Check the website of the Secretary of State of the state of incorporation for information on how to perform a name availability search prior to choosing a name, to make sure that the intended name is not already in use. Your state also requires the corporate name to use a suffix, such as Inc., that indicates its limited liability status. If the corporation will operate under a trade name, list the trade name as well. Listing the trade name in the pre-incorporation agreement helps establish that the corporation intends to use it in business -- a requirement for registration of a trademark that is not already in use.
In the pre-incorporation contract, list the state of incorporation. Normally, the state of incorporation is the state where the corporation's principal place of business is located, although you may incorporate in another state and pay annual fees to do business in your home state. Many large corporations choose to incorporate in Delaware because of its corporation-friendly legal system. List the corporation's principal business address if it has already been selected. Select a registered agent, to whom all official communications to the corporation will be addressed. The registered agent need not be a shareholder, officer or director -- many corporations list their lawyer as their registered agent, for example. Most states require the registered agent to reside in the state of incorporation.
List the number of shares that the corporation is authorized to issue and the number of shares that will initially be issued to shareholders. The total number of issued shares need not be equal to the number of authorized shares -- leave the corporation room to issue additional shares in response to future business needs. Name each shareholder and list the number of shares held by each.
Many countries require a corporation to state its purpose quite specifically, and will not allow it to operate outside of that purpose. In the U.S., however, it is permissible to state the corporate purpose broadly -- "to perform any lawful activity" is acceptable, for example. Don't state the corporate purpose narrowly unless you have solid business reasons for doing so, because a narrow statement of purpose, if reflected in the Articles of Incorporation, can unnecessarily limit the corporation's flexibility.
About the Author
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.
- signing a contract image by William Berry from Fotolia.com
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