Pre-Incorporation Contract

Founders often need to commit before their corporation exists. A landlord wants a signed lease before the build-out starts, a supplier wants a purchase order, or a seller will not hold a business while the buyer incorporates. When someone signs for "ABC Holdings Inc., a corporation to be incorporated", they are making a pre-incorporation contract.

At common law this was a trap. A corporation could not ratify a contract made before it existed, so the new corporation was not bound, and whether the signer was bound turned on the wording of the document. Ontario replaced that uncertainty with a default rule in section 21 of the Ontario Business Corporations Act (OBCA).

Section 21 applies only where the corporation did not exist when the contract was made. An Ontario corporation exists from the date on its certificate of incorporation, which is issued when the articles of incorporation are filed and endorsed. If the corporation already exists, signing for it is an ordinary question of authority. If a buyer plans to use an existing company, such as a numbered company bought ready-made, the safer course is to name that company in the contract or document an assignment rather than rely on section 21. And a founder who contracts in their own name, without mentioning a corporation, is simply acting as a sole proprietor or individual: the contract is theirs until it is assigned.

Section 21 sets out the whole sequence. The text is on Ontario e-Laws.

1. Personal liability by default. A person who enters into an oral or written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and entitled to its benefits (subsection 21(1)).
2. Adoption by the corporation. Within a reasonable time after it comes into existence, the corporation may adopt the contract by any action or conduct signifying its intention to be bound. It is then bound, and entitled to the benefits, as if it had existed and been a party on the contract date (subsection 21(2)).
3. Release of the signer. On adoption, the person who signed stops being bound by or entitled to the contract, subject to the court's power in step 5.
4. Before adoption. Until the corporation adopts it, the signer may assign, amend or terminate the contract, subject to its terms (subsection 21(2.1)).
5. Court orders. Whether or not the contract is adopted, a party may ask the court to make the obligations joint or joint and several, or to apportion liability between the corporation and the signer, and the court may make any order it thinks fit (subsection 21(3)).
6. Contracting out. If the contract expressly provides it, the signer is not bound by or entitled to the contract in any event (subsection 21(4)), and the court's power in step 5 does not apply.

Unless the contract says otherwise, someone is always on the hook: the signer until adoption, and the corporation after it.

Adoption can be formal or inferred from conduct. Paying rent under a lease, taking delivery of goods, accepting services or performing the contract in the corporation's name can all signify adoption. Relying on conduct invites argument, though, about whether the corporation really meant to be bound and whether it acted within a reasonable time, a phrase the statute does not define.

Make adoption explicit:

• Include an adoption resolution in the directors' organizational resolutions, identifying each pre-incorporation contract by date, parties and subject. Our after-incorporation checklist covers the rest of that organizational work.
• Send the other party written notice that the corporation has adopted the contract, and ask it to countersign an acknowledgement.
• For important contracts, such as a lease, a loan or a business purchase, ask for a short novation or amending agreement confirming the corporation as the party and releasing the signer.
• File the contract, the resolution and the acknowledgement in the corporate minute book.

Adoption releases the signer from the contract itself, not from separate obligations. A personal guarantee signed alongside a lease or loan is its own contract and stays in force after the corporation adopts the main agreement.

The cleanest protection is a clause stating that the signer is not personally bound. Under subsection 21(4) that clause works even if the corporation is never formed, which is why landlords, lenders and sellers rarely accept it: if the corporation never adopts the contract, they have no one to sue. Other approaches are easier to negotiate.

• Incorporate first. Incorporating before signing removes the problem. A numbered company works if the brand is not settled, and our startup incorporation team can set one up before you sign.
• Release on adoption. The contract can release the signer automatically once the corporation adopts it in writing and the counterparty receives notice, with personal liability continuing only if adoption has not happened by a fixed date.
• Make it conditional. For a business purchase, make closing conditional on the buyer's corporation being formed and adopting the agreement.

Read the whole document too. Wording such as "in trust for a company to be incorporated" does not by itself release the signer, and a clause making the signer jointly liable with the corporation, or an indemnity, can keep personal exposure alive even after adoption.

Corporations incorporated under the Canada Business Corporations Act are governed by CBCA section 14, which follows the same model with a few differences.

The practical gap is oral deals. An oral arrangement made for a future federal corporation is not covered by section 14, which leaves general contract and agency principles to decide who is bound. Putting every pre-incorporation commitment in writing avoids that question in either jurisdiction.

Jonah Feld plans a café in Port Credit, Mississauga. In May 2026 he signs a five-year lease for "Feld Coffee Inc., a corporation to be incorporated" at $7,500 a month, together with the personal guarantee the landlord requires. He orders a $42,000 espresso and kitchen package from a supplier the same way. Neither contract says he is not personally bound.

Three weeks later Jonah incorporates Feld Coffee Inc. under the OBCA. In its organizational resolutions the board adopts both contracts, Jonah sends the landlord and the supplier written notice, and the corporation pays the first month's rent and the equipment deposit from its own bank account. Under subsection 21(2), Feld Coffee Inc. is now the tenant and the buyer, and Jonah is released from both contracts as signer. His personal guarantee of the lease stays in place because it is a separate contract.

Compare Olivia Mensah, who that same month signed a $28,000 equipment contract for "Mensah Bakery Ltd., to be incorporated", then abandoned the project without incorporating. No corporation ever existed to adopt the contract and the contract did not exclude her liability, so under subsection 21(1) the supplier can enforce it against her personally.