If a corporation is formed and adopts a pre-incorporation contract, who is liable?

When a corporation is formed and adopts a pre-incorporation contract, both the corporation and the promoter can be held liable for the obligations contained in that contract. Initially, since the corporation did not exist at the time the contract was made, the promoter is personally liable for the contract. However, once the corporation is formed and adopts the contract, the corporation steps in and assumes liability for the terms of that contract as if it were its own.

This dual liability arises from the principle that the actions taken by promoters on behalf of the corporation prior to its incorporation create obligations that, upon the corporation's formation and acceptance of those obligations, can serve to bind both the promoter and the corporate entity. Therefore, creditors can pursue either party for fulfillment of the contract obligations, depending on the circumstances and potential defenses available.

The nuances of the law surrounding pre-incorporation contracts highlight the importance of clearly defining the roles and responsibilities of both promoters and the newly formed corporation when engaging in contracts prior to the official formation of the entity.