⚡ 10-Second Rule
No stamped paperwork means no corporation — and whoever signs deals before the stamp pays personally.
🧒 ELI-10 Scene
Priya wants to start a robotics club at school. The rule is simple: no club exists until the front office stamps the charter form. Before the stamp, Priya orders a $200 robot kit "for the club." The club isn't real yet. So the store can only bill Priya. Later the office stamps the form. Now the club is real, and it can take over Priya's order. But the store can still chase Priya. She stays on the hook until the store agrees, clearly, to swap her out for the club.
⚖️ Actual Rule
Under MBCA § 2.02, articles of incorporation must state the corporate name, the number of authorized shares, the registered office and registered agent, and the incorporators. Corporate existence begins when the filing becomes effective, and the secretary of state's filing is conclusive proof of incorporation except in a proceeding by the state. MBCA § 2.03. Under MBCA § 2.04, all persons purporting to act as or on behalf of a corporation, knowing there was no incorporation, are jointly and severally liable for the resulting obligations. Where a filing fails, courts may still recognize a de facto corporation (a good-faith, colorable attempt to comply with the incorporation statute plus actual use of corporate powers) or a corporation by estoppel (one who dealt with the business as a corporation cannot later deny its existence). A promoter is personally liable on contracts made before incorporation; the corporation becomes liable only if it adopts the contract, and adoption adds the corporation as an obligor without releasing the promoter — only a novation does that. Under MBCA § 3.04, corporate action may not be challenged as ultra vires — beyond the corporation's stated powers — except in a suit by a shareholder to enjoin the act, by the corporation against its directors or officers, or by the state.
ELI-10 translation: the stamp makes the company real; before the stamp, the signer pays, and keeps paying until everyone agrees to a swap.
🔍 Ask These Questions
- Were the articles filed and effective? (Did the state stamp the company's birth certificate?)
- If the filing failed, was there a good-faith attempt to incorporate plus corporate use? (Did they honestly try, believe it worked, and act like a company?)
- Did the other side treat the business as a corporation? (If you dealt with it as a company, you can't un-say that later.)
- Did the actor know there was no incorporation? (Signers who knew the company wasn't real pay personally.)
- Did a promoter sign the deal before the company existed? (Early signers are stuck with the deal.)
- Was there adoption or novation? (Taking over the deal adds the company; only a full three-way swap frees the promoter.)
- Is anyone crying ultra vires? (Saying "the company wasn't allowed to do that" almost never cancels a done deal.)
⚠️ Bar Trap
Exam language: Examinees assume that incorporation — or the corporation's subsequent adoption of a pre-incorporation contract — discharges the promoter. It does not. The promoter remains personally liable unless the creditor agrees to a novation substituting the corporation as the sole obligor.
ELI-10: The company taking over the deal doesn't erase the signer's name. Only the other side saying "fine, I'll swap you for the company" erases it.
🧪 Question
Dana planned to open a bakery through a corporation to be named Brightloaf Bakery, Inc. Before filing anything, Dana signed a two-year commercial lease with a landlord, signing as "Dana, on behalf of Brightloaf Bakery, Inc., a corporation to be formed." One month later, Dana properly filed articles of incorporation, and the newly elected board voted to adopt the lease. The corporation paid rent for six months and then defaulted. The landlord sued Dana personally for the unpaid rent.
Is Dana liable?
(A) No, because the corporation adopted the lease after incorporation. (B) No, because the landlord knew the corporation had not yet been formed when the lease was signed. (C) Yes, because a promoter remains liable on a pre-incorporation contract absent a novation. (D) Yes, but only for rent that accrued before the corporation came into existence.
Answer: (C). A promoter is personally liable on contracts made on behalf of a corporation not yet formed. Adoption made the corporation an additional obligor, but nothing shows the landlord agreed to release Dana, so no novation occurred and Dana remains liable for the full obligation.
💡 Why the Wrong Answers Are Wrong
- (A) confuses adoption with novation; adoption adds the corporation as an obligor but does not release the promoter.
- (B) overstates the effect of the landlord's knowledge; knowledge that the corporation is unformed does not by itself show an agreement to look only to the corporation.
- (D) invents a time-split rule; promoter liability runs on the whole contract, not just the pre-incorporation portion.
- ELI-10: The misconception is thinking the new company's arrival wipes the signer's name off the deal. It doesn't — the other side must agree to the swap.
