MBE Rules · Business Associations
Stock Subscriptions
Cal. Corp. Code § 41x (subscriptions)
The rule
Pre-incorporation subscriptions are irrevocable for six months absent contrary terms or unanimous consent; post-incorporation subscriptions are contracts enforceable by the corporation on acceptance.
In plain English
Stock subscriptions are agreements to purchase shares in a corporation. If someone subscribes to stock before the corporation is formed, that subscription cannot be revoked for six months unless the terms say otherwise or all subscribers agree to let them out.
Worked example
Alice agrees to subscribe for 100 shares of a new tech company before it is incorporated. Six months later, she tries to back out, but since there are no contrary terms in the subscription agreement and not all subscribers consent, she is still bound to her subscription. Therefore, Alice must fulfill her commitment and purchase the shares.
Memory hook
Pre-incorporation subscriptions stick for six months unless everyone agrees to let go.
The trap
Exams may present scenarios where students overlook the six-month irrevocability period or fail to recognize the difference between pre-incorporation and post-incorporation subscriptions.
How examiners test it
Questions often involve fact patterns where a subscriber attempts to revoke their subscription, testing the student's understanding of the timelines and consent requirements.
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