Written by attorneys · grounded in primary & secondary sources — see below
A contract pursuant to which an investor agrees to buy corporate stock. When the agreement is signed before incorporation, the Model Business Corporation Act imposes special rules on revocation, payment calls, and liability for the purchase price.
Sources & Authorities
How it applies
Common Examples
3
Revocation Attempt Within Six Months
Sean Steele signed a pre-incorporation subscription agreement with Sentinel Security in January to purchase shares for $50,000. In March, after market conditions worsened, Sean sent written notice attempting to revoke the commitment. The corporation was formed in April and later demanded payment. Because the agreement contained no revocation clause and the other subscribers did not consent, Sean's March notice had no effect and the obligation remained binding.
Nonuniform Payment Call by Board
Sebastian Santos and Santiago Sanchez each signed pre-incorporation subscription agreements for the same class of shares in Sterling Dynamics. Sebastian agreed to contribute equipment valued at $40,000 plus cash. Santiago agreed to pay $50,000 in cash. After formation the board adopted a resolution giving equipment contributors a ninety-day deferral while requiring immediate payment from cash subscribers. The nonuniform call violated the statutory requirement that payment terms be uniform so far as practicable for subscribers of the same class.
Put it into practice
Test Yourself
10
Practice Questions5
· 5 primary sources
Select any source to read its text and confirm it supports the definition.
Model Codes
Study Supplements
Liability Limited to Stated Consideration
Sierra Santos purchased shares in Silverline Industries under a subscription agreement specifying a purchase price of $25,000. After the corporation encountered financial difficulty, creditors attempted to hold Sierra personally liable for additional corporate debts beyond the agreed price. Because Sierra had paid the consideration specified in the agreement, she had no further liability to the corporation or its creditors with respect to the shares.
Common questions
Frequently Asked
4
How long is a pre-incorporation subscription agreement irrevocable under the Model Business Corporation Act?+
The agreement is irrevocable for six months unless the subscription agreement itself provides a longer or shorter period or all subscribers agree to revocation. This rule stabilizes capital commitments during the vulnerable pre-incorporation phase.
Supporting sources
May a board of directors impose different payment schedules on subscribers of the same class of shares?+
No. The board may set payment terms when the agreements are silent, but any call must be uniform so far as practicable for all shares of the same class or series unless the agreements specify otherwise.
Supporting sources
What is a purchaser's liability after paying the consideration stated in a subscription agreement?+
A purchaser is not liable to the corporation or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued or specified in the subscription agreement.
Supporting sources
When do shares issued under a pre-incorporation subscription become fully paid and nonassessable?+
The shares become fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.
Supporting sources
Secured TransactionsGeneral UCC principles · Rules of construction and application (§ 1-101, et seq.)UBEFoundational