Legal Question in Business Law in California

The Powers of a Promoter to issue stock

I know that a promoter for a ''forming'' corporation can solicit subscriptions for stock.

I believe that, if accepted, this is considered an ongoing offer for stock purchases. Does soliciting subscriptions for stock equate to issuing stock? I am just not clear on this point. I do know that a promoter can lease property or purchase land for corporate offices and enter into other types of contracts in behalf of the forming corporation. So, a promoter has a major role. Does the law allow a actually promoter to issue stock? Or, is stock only issued once the corporation is formed? Thank you.


Asked on 1/08/02, 1:00 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: The Powers of a Promoter to issue stock

(1) The attorney who advised you that proceeding without your own securities specialist on retainer will be risky is correct.

(2) An individual promoter who takes actions on behalf of a to-be-formed corporation is very likely to be held personally liable for anything that goes wrong.

(3) A corporation cannot issue stock before it has existence, i.e. before it is formed. There are tools that sophisticated Wall Street type attorneys and firms can use to raise money or allocate stock rights prospectively, e.g. "when issued" rights, but only after thousands of hours of research and planning by very experienced attorneys and accountants.

(4) Smaller businesses which are not yet incorporated can ask insiders and certain qualified investors to make advance commitments. The promoters will ordinarily be personally liable for any miscues. An understanding of the securities laws is a prerequisite to any such solicitation of stock subscriptions.

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Answered on 1/08/02, 3:26 pm


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