18 BULLETIN 1106, r. S. DEPARTMENT OF AGRICULTURE. 
LIABILITY OF CORPORATION FOR PROMOTION EXPENSES. 
What is the liability of a corporation on contracts made or obliga- 
tions incurred by its promoters or those who are active in forming 
and organizing it? The answer is that as a general rule it is not 
liable unless it recognizes and ratifies the contracts or obligations after 
its formation. This question arises in connection with the work done 
or contracts made incident to the promotion of a corporation and 
prior thereto by those who are active in bringing about the existence 
of the corporation. 
In a Xorth Dakota case. 58 in which the claim involved arose out 
of work done by a stock subscription solicitor in obtaining sub- 
scribers to the capital stock of a corporation to be organized, it 
was said: 
It is elementary that a corporation is not liable npon contracts entered into 
by its promoters. Before the corporation comes into existence, it can have 
no representative and no one is capable of acting for it. Those interested 
in promoting it may nevertheless contemplate the ultimate payment by cor- 
poration of the legitimate promotion expenses. But the corporation does 
not become liable for such expenses in the absence of a subsequent undertaking 
in some form. 
In a Montana case 59 appears the following : 
In the absence of a statute, a corporation will be held liable for services 
rendered by its promoters before incorporation, only when by express action 
taken after it becomes a legal entity it recognizes or affirms such claim, a 
failure to object when the claim is mentioned is not such an assumption or 
adoption as will bind the corporation. 
It is true that as a rule a corporation usually pays the necessary 
legitimate expenses and costs incurred by those who brought about 
its formation, but the corporation is not liable for such charges un- 
less it elects to pay them. 
DIFFERENCES BETWEEN STOCK AND NONSTOCK CORPORATIONS. 
A stock corporation is a corporation having capital stock divided 
into shares. As evidence of these shares, although not the shares 
themselves, certificates of stock are usually issued. 
Capital stock and stock certificates or stock are generally re- 
garded as characteristics of a business corporation. That is, busi- 
ness corporations usually have capital stock and usually issue cer- 
tificates of stock. This need not necessarily be true. For it should 
be remembered that corporations are creations of the legislature and 
that it can, within constitutional limitations, endow them with such 
powers and limitations as seem -advisable. The State, then, can 
create business corporations without the elements mentioned. True, 
— 9 
58 Davis r. Joerke, (N. Dak.) 181 N. W. GS. 
59 Kirkup c. Anaconda Amusement Co., (Mont.) 107 Pae. 1005: -see also Cushion 
Heel Co. v. Hartt, 181 Ind. 167, 103 N. E. 1013, 50 L. R. A. (N. S.) 979. 
