Doctrine of Preincorporation Adoption | Brian JM Quinn | May 31, 2016

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Doctrine of Preincorporation Adoption

The preincorporation environment is perhaps the most common situation in which the doctrine of adoption is applied. The doctrine of adoption as it is applied to preincorporation agreements is straightforward. According to a leading treatise:

American courts generally hold that promoters' contracts made on the corporation's behalf may be adopted, accepted or ratified by the corporation when organized, and that the corporation is then liable, both at law and in equity, on the contract itself, and not merely for the benefits which it has received. Accordingly, if the corporation accepts the contract's benefits, the corporation will be required to perform its obligations.

Under Delaware law, if the subsequently formed corporation expressly adopts the preincorporation agreement or implicitly adopts it by accepting its benefits with knowledge of its terms, the corporation is bound by it. 

See:  Alf v Lorillard Tobacco Co., 831 A.2d 335, 350 (Del. Ch. Ct, 2003).

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May 31, 2016

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Brian JM Quinn

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