What Are Pre-Incorporation Agreements?

Pre-incorporation agreements, also known as promoters' agreements, outline a corporation's operations, responsibilities, and ownership before it is formally established. This type of agreement is usually made between the individuals (often referred to as promoters) involved in setting up the corporation.

The purpose of a pre-incorporation agreement is to set forth the corporation's plans and each promoter's responsibilities during the incorporation process. The details included in the agreement can vary but often include the following:

1. Division of Responsibilities: The agreement may specify who is responsible for tasks such as drafting the articles of incorporation, creating bylaws, or securing initial financing.

2. Initial Capital Contributions: The agreement may document the amount of money, or other assets each promoter will contribute to start the corporation and how equity in the corporation will be distributed in return.

3. Future Management and Control: The agreement may outline who will serve as directors or officers of the corporation once it is established and how future decisions will be made.

4. Allocation of Shares: The agreement typically indicates how shares will be allocated among the founders or promoters, setting the groundwork for the corporation's capital structure.

5. Plans for Intellectual Property: If the promoters are contributing intellectual property to the corporation, the agreement might outline the terms of this transfer.

6. Dispute Resolution: The agreement may include a clause outlining how disputes between promoters will be handled.

7. Liability Issues: The agreement might specify that the corporation will assume liability for obligations incurred by the promoters during the formation process once the corporation is established.

One critical aspect of pre-incorporation agreements is that they are made before the corporation legally exists and that the agreement does not bind the corporation itself, and the promoters can be personally liable for any obligations they undertake in the corporation's name unless there is a specific agreement to the contrary.

Given the legal complexities involved, consulting with an attorney when drafting a pre-incorporation agreement is often advisable.