Asked by Raabiah Azeez on Jul 17, 2024
Verified
Sharon entered into a preincorporation share subscription agreement on January 1,2006.The corporation was formed on February 1,2006.What is the status of this agreement on March 1,2006,under the Model Business Corporation Act?
A) It is binding only if Sharon has already paid for the shares.
B) It is binding even if Sharon has not already paid for the shares.
C) It is not binding because the corporation did not exist on January 1,2006.
D) It is not binding unless Sharon ratifies the agreement after the corporation has been formed.
Preincorporation Share Subscription
An agreement by an investor to purchase shares in a corporation that is yet to be formed, often used to fund the creation of the new company.
Model Business Corporation Act
A set of model laws designed to standardize and simplify the legal structure of corporations across the United States.
Ratifies
The act of officially confirming or endorsing a decision, making it formally valid.
- Ascertain the situations where pre-incorporation share commitments hold legal validity and their influence on the corporation.
Verified Answer
LW
Lindsey WeavilJul 18, 2024
Final Answer :
B
Explanation :
Under the Model Business Corporation Act (MBCA),a prospective shareholder may not revoke a preincorporation subscription for a six-month period,in the absence of a contrary provision in the subscription.Therefore,the preincorporation share subscription agreement that Sharon entered into on January 1,2006 is binding on March 1,2006 even if Sharon has not already paid for the shares.
Learning Objectives
- Ascertain the situations where pre-incorporation share commitments hold legal validity and their influence on the corporation.