Promoters are persons acting on behalf of a Corporation that has not yet formed.
Prior to incorporation it is common for a promoter to raise capital and contract for a location, business materials, equipment, etc.
Liability for Promoter Contracts: Promoters are personally liable for pre-incorporation contracts until:
✅ There has been a novation (legal term that means legally effective substitution) replacing the promoter's liability with that of the Corporation; or
✅ There is an agreement between the parties that expressly states that the promoter is not liable.
Right of Reimbursement: The promoter may have a right to reimbursement based on quasi-contract for the value of the benefit received by the Corporation, or on the implied adoption of the contract.
A Corporation is not generally liable for, or bound to, pre-incorporation contracts except where the Corporation expressly:
✅ Adopts the contract; or
✅ Accepts the benefits of the contract.
Note: The promoter is also still liable unless there has been a novation (that is a legally effective substitution) or express agreement between the parties that the promoters will not be liable.
Promoter Duties: A promoter has a fiduciary relationship with the Corporation requiring good faith.
Promoters cannot make a secret profit on their dealings with the Corporation.
This FAQ was prepared by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.
This FAQ is intended for general interest + information only.
It is not legal advice, nor should it be relied upon or used as such.
We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.