Those who take the initiative to organise a business prior to formation of the corporation are called promoters. Generally, promoters coordinate compliance with the legal requirements necessary to form a corporation, secure capitalization, and work to assemble the resources and personnel the corporation needs. In doing so, promoters have fiduciary duties to act in good faith concerning the yet to be formed corporation, and are prohibited from pursuing their own profit at the corporation’s expense. If there are co-promoters, they owe each other a duty of full disclosure. Promoters are to be distinguished from incorporators whose role is largely limited to the act of execution of the charter, adopting the initial bylaws and designating the initial board of directors.
Naturally, the work of promoters requires them to enter into contracts with employees, landlords, suppliers, and others. As a general rule, promoters are personally liable for contracts which they enter into with knowledge that the corporation is not yet formed, and where the third party does not know that the corporation is not yet formed.
In most jurisdictions, preincorporation contracts are not automatically binding on the corporation when formed. Instead the corporation must either adopt or ratify the contracts by resolution, or by act or failure to act. Some jurisdictions apply a more stringent standard whereby the corporation may become a party only by entering into a new contract or a formal novation (a specific new agreement between the corporation, the promoter and the third party to release the promoter from liability).