Asked by Kimberly Beltran on Jun 01, 2024
Verified
Which of the following statements about pre-incorporation contracts is false?
A) Promoters will often purchase property on behalf of a corporation prior to incorporation and then have the corporation ratify after incorporation has taken place.
B) Ratification of pre-incorporation contracts is invalid at common law, since the corporation did not exist at the time the contract was made.
C) Many jurisdictions have made legislative changes permitting later-incorporated corporations to ratify pre-incorporation contracts.
D) If a corporation does not ratify a pre-incorporation contract, or if a pre-incorporation contract is signed in a jurisdiction which does not permit ratification, the promoter remains solely liable for any losses.
E) Promoters cannot be held liable for losses due to the doctrine of corporate myth.
Pre-incorporation Contracts
Agreements entered into on behalf of a corporation that has not yet been legally formed, often leading to questions about enforceability.
Ratification
When the majority agrees with the terms of a collective bargain; when a principal confirms a contract entered into by his agent.
Promoters
Individuals or organizations that undertake the founding and organization of a corporation by arranging for its financing, registration, and public offering.
- Comprehend the importance of, and the statutory context surrounding, agreements made before a company's formation and the responsibilities of its promoters.
Verified Answer
DG
Dahryl GrantJun 05, 2024
Final Answer :
E
Explanation :
Promoters can be held liable for losses on pre-incorporation contracts if the corporation does not ratify the contract or if ratification is not permitted by law, contradicting the idea of the "corporate myth" which suggests that only the corporation can be held liable.
Learning Objectives
- Comprehend the importance of, and the statutory context surrounding, agreements made before a company's formation and the responsibilities of its promoters.