Can I sign contracts for a corporation before it is incorporated?

You can sign a contract before incorporation, but you need to understand who is liable — and take the right steps afterward.

A contract signed on behalf of a corporation that does not yet exist is called a pre-incorporation contract. Under the Business Corporations Act (Ontario), a person who enters into a written contract in the name of or on behalf of a corporation before it exists is personally bound by that contract unless the contract itself states otherwise. This is the promoter rule.

Once the corporation is formed, it can adopt the pre-incorporation contract by passing a board resolution that formally adopts and ratifies the agreement. Once adopted, the corporation becomes bound by the contract. Importantly, under the OBCA, adoption also releases the promoter (the person who originally signed) from personal liability — if the corporation adopts the contract and the other contracting party has been notified of the substitution.

If the corporation never adopts the contract, or is never incorporated, the individual who signed remains personally liable. Courts have also found that if a third party reasonably understood they were dealing with an existing corporation and not an individual, the situation becomes more complicated.

The practical lesson: incorporate before you sign significant contracts. If that is not possible, use clear language in the contract and adopt it promptly after incorporation.