An incorporation agreement is an important document when a company takes steps to incorporate. Also known as a pre-incorporation agreement, it will help prevent misunderstandings about the roles and responsibilities of the principal parties of an incorporated entity.
It sets out such details as the name of the corporation being formed, its purpose, the names of the directors and officers at the time the business is incorporated, share distribution, and even salaries for the directors and officers. With this document, you can confidently enter into agreements and make key decisions prior to actual formation of your business as a corporation.
The incorporation agreement exists prior to the directors filing formal Articles of Incorporation in the province in which the business plans to be established. The directors, also known as the corporation’s promoters, can be held personally liable for any breach of the agreement should the corporation not actually be formed. Therefore, all parties to the agreement should insist on an acknowledgement within the document that the corporation has yet to be formed. This language will insure that they avoid any personal liability.
Importance of an Incorporation Agreement
While an incorporation agreement is not required by a province as part of the documents that must be filed to incorporate, it is nonetheless an important step that a corporation’s founders should take. Advantages of the agreement include:
- Explicit descriptions of the roles and responsibilities of the directors and officers of the corporation.
- Scope of liability of each director and officer in the event a claim for damages is filed against the corporation.
- Obligation of the corporation to conduct business according to the statutes of the province in which it is formed.
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