The role of the “promoter” is a bit of an anachronism under the Business Organizations Code. Dean Hildebrand defined a promoter as “one who brings together the persons who become interested in the enterprise, aids in procuring subscribers, and sets in motion the machinery which leads to the formation of the corporation itself. The term involves the idea of exertion for the purpose of getting up and starting a company ….”1 Ira P. Hildebrand, The Law of Texas Corporations § 187 (1942). Traditionally, the promoter would undertake to bring together all that was necessary for the corporate enterprise: capital through subscriptions of investors, and assets, equipment, personnel, leases, etc. And the corporation would be formally organized only once all of this was assembled and ready to go.20 Tex. Prac., Business Organizations § 26:7 (3d ed.). Under modern practice, incorporation usually happens first and all of the activity traditionally undertaken by promoters takes place under the auspices of the corporation through its officers and agents. Legal issues relating to the authority and liability of the promoter only occur when activity in anticipation of the formation of a corporation precedes the filing of the certificate of formation.
Promoter authority and liability
When the business is organized in advance of the incorporation, questions often arise as to the authority of the promoter to bind the corporation to contractual commitments entered into prior to the corporation’s existence. The promoter enters into a contract or lease on behalf of the to-be-formed corporation; however, the promoter “could not act as agent for a nonexistent corporation. A nonexistent corporation can have no agent.”Fish v. Tandy Corp., 948 S.W.2d 886, 897 (Tex. App.—Fort Worth 1997, writ denied). “A promoter, though he purport[s] to act on behalf of the projected corporation, and not for himself, cannot be treated as agent, because the nominal principal is not then in existence ....”Weatherford, Mineral Wells & Nw. Ry. Co. v. Granger, 86 Tex. 350, 24 S.W. 795, 796 (1894). See Cator v. Commonwealth Bonding & Cas. Ins. Co., 216 S.W. 140, 142 (Tex.Com.App.1919, judgm't adopted); Weatherford, M.W. & N.W. Ry. Co. v. Granger, 86 Tex. 350, 353, 24 S.W. 795, 796 (1894); Cavaness v. General Corp., 272 S.W.2d 595, 598 (Tex.Civ.App.—Dallas, 1954), aff'd, 155 Tex. 69, 283 S.W.2d 33 (1955). See also BAC Home Loans Servicing, LP v. Texas Realty Holdings, LLC, 901 F. Supp. 2d 884, 921–22 (S.D. Tex. 2012) (“In Texas, when a promoter of a corporation enters into a contract before the corporation comes into existence, the promoter is personally liable on the contract, absent an agreement with the contracting party that the promoter is not liable.”); Byerly v. Camey, 161 S.W.2d 1105, 1110 (Tex. Civ. App.—Fort Worth 1942, writ ref'd w.o.m.) (“The promoters are not regarded as agents of the corporation later to be formed, nor are their contracts binding upon the corporation, unless made so by charter or statute, or unless assumed by the corporation.”).
If things don’t go the way the promoter anticipates, the contract is not enforceable against the future corporation. Fish v. Tandy Corp., 948 S.W.2d at 897–98 (“A promoter, though he purport to act on behalf of the projected corporation, and not for himself, cannot be treated as agent, because the nominal principal is not then in existence; and hence, where there is nothing more than a contract by a promoter, in which he undertakes to bind the future corporation, it is generally conceded that it cannot be enforced.”). In such cases, generally, the promoter is personally liable to the other contracting party. Kahn v. Imperial Airport, L.P., 308 S.W.3d 432, 438–39 (Tex. App.—Dallas 2010, no pet.) (“Likewise, one cannot sign for and bind a legal entity that does not yet exist. .... We conclude that, under the facts of this case, Kahn is personally liable on the Lease.”); Fish v. Tandy Corp., 948 S.W.2d at 898 (“Thus, notwithstanding assertions that he acted solely in contemplation of the formation of a corporation, a promoter can be personally liable for entering into a contract for an unformed corporation.”). See Stephens v. Felix Mexican Restaurant, Inc., 899 S.W.2d 309, 314 n. 9 (Tex.App.—Houston [14th Dist.] 1995, writ denied).
The promoter may escape personal liability in only two situations: First, if the corporation ultimately adopts the contract or accepts its benefits, then the corporation becomes the contracting party, and the promoter is relieved from personal liability. Beesley v. Hydrocarbon Separation, Inc., 358 S.W.3d 415, 423 (Tex. App.—Dallas 2012, no pet.) (“Absent such an agreement, a promoter is relieved of personal liability only when the corporation subsequently adopts the contract either expressly or by accepting its benefits.”; Fish v. Tandy Corp., 948 S.W.2d at 898 “Otherwise, a promoter is relieved of personal liability only when the corporation subsequently adopts the contract either expressly or by accepting its benefits.”). See Coastal Shutters & Insulation, Inc. v. Derr, 809 S.W.2d 916, 920 (Tex.App.—Houston [14th Dist.] 1991, no writ); Aloe Ltd., 733 S.W.2d at 367; Cavaness, 272 S.W.2d at 598–99; Weeks v. San Angelo Nat'l Bank, 65 S.W.2d 348, 349 (Tex.Civ.App.—Austin 1933, writ ref'd). Second, the promoter has the foresight to expressly agree with the contracting party that the promoter is not personally liable. Beesley v. Hydrocarbon Separation, Inc., 358 S.W.3d at 423 (“When a promoter enters a contract on behalf of an unformed corporation, he is personally liable on the contract unless there is an agreement with the contracting party that the promoter is not liable.”). See Fish v. Tandy Corp., 948 S.W.2d at 897; Bibbee v. Root Glass Co., 128 Tex. 220, 222, 96 S.W.2d 975, 976 (1936); Aloe Ltd. v. Koch, 733 S.W.2d 364, 366, (Tex.App.—Corpus Christi 1987, no writ). Or if the contract is expressly in the name and on the credit of the proposed corporation and the promoter can prove that the contracting party knew that the corporation did not yet exist. Fish v. Tandy Corp., 948 S.W.2d at 897. See Aloe Ltd., 733 S.W.2d at 366; Schwedtman v. Burns, 11 S.W.2d 348, 349–50 (Tex.Civ.App.—El Paso 1928, no writ); Granger, 24 S.W. at 796.See also Weeks v. San Angelo Nat. Bank, 65 S.W.2d 348, 349 (Tex. Civ. App.—Austin 1933, writ ref'd) (“It is quite generally held that a contract made by a promoter of a corporation, in its behalf and upon express agreement that the corporation alone is to be bound, and no personal liability is to exist against the contracting promoter, is valid, provided the contract is one which the corporation, if it were then in existence, could legally make; and a subsequent adoption of the contract by the corporation will relieve the promoter of personal liability thereon.”).
While the presumption is that the promoter will be personally liable on contracts he makes on behalf of the future corporation, if the corporation never comes into existence, the opposite is true when the promoter attempts to enforce the contract individually. In Cavaness v. General Corporation, 272 S.W.2d 595 (Tex. Civ. App.—Dallas 1954), aff'd, 283 S.W.2d 33 (Tex. 1955), the owner of a patent application, executed a licensing agreement on behalf of “D-A-M Company,” in the capacity of president. The contract did not indicate that the corporation was not yet in existence, and the contract contained a merger clause: “‘This contract covers all the agreement between the parties hereto and no oral representations will be recognized.”Id. at 597. The promoter never formed the corporation and later sued individually on the contract.
While acknowledging that the promoter would have been liable if the parties’ positions were reversed, seeid. at 598, the court of appeals held that the promoter could not bring a suit for his own benefit for two reasons: First, the promoter committed a prior material breach by failing to form the corporation, and independently, the promoter was individually estopped to deny the corporation’s existence—”by signing the contract as President of the D-A-M Company, a corporation, is estopped and barred from denying the existence of the corporation.”Id. at 599. Therefore, no corporation existed that could bring the claim in its own name, and the promoter was precluded by estoppel from asserting a claim individually based on the nonexistence of the corporation.
The Texas Supreme Court affirmed based on the parol evidence rule: “Where an individual contracts in writing as the purported act of an existing corporation with himself as president, he can no more prove by parol an understanding that he was contracting for a future corporation, or one at his option for himself or a future corporation, than an understanding that he individually was the real contracting party where the writing unambiguously shows him to be acting as agent for an individual principal.”Cavaness v. Gen. Corp., 155 Tex. 69, 77–78, 283 S.W.2d 33, 39 (1955). The Supreme Court opinion seemed to indicate that, had the underlying contract been ambiguous as to the existence of the existence of the corporation or the role of the promoter (e.g., “D-A-M Company, a corporation to be formed”), then the remedy of reformation might have been available to substitute the promoter for the unformed corporation and allow individual enforcement of the contract.See id. at 74-75, 283 S.W.2d at 37.
The situation is slightly more complicated in contracts involving the conveyance of land to a corporation not yet formed because of the rule that “a deed is void if the grantee is not in existence at the time the deed is executed.”Parham Family Ltd. P'ship v. Morgan, 434 S.W.3d 774, 787 (Tex. App.–Houston [14th Dist.] 2014, no pet.) In Savering v. City of Mansfield,505 S.W.3d 33 (Tex.App.-Fort Worth, 2016), the Fort Worth Court of Appeals refused to apply the rule to ignore a conveyance to a home owners’ association where the articles of incorporation and the deed were executed on the same day and the articles were filed promptly thereafter. “By treating the HOA as a nonexistent entity that was incapable of owning the R2 lots, the City and the dissent ignore the realities associated with the complicated process of formalizing a development and improperly seek to resolve this challenging case upon a hypertechnical reading of the grantee-existence rule. We will not do so.”Id. at 46.
Fiduciary Duties to the corporation
While a promoter is not considered the corporation’s agent unless and until the corporation adopts transactions entered into by the promoter, the promoter is nevertheless charged with fiduciary duties toward the future corporation and its subscribers.Cator v. Com. Bonding & Cas. Ins. Co., 216 S.W. 140, 142 (Tex. Comm'n App. 1919) (“Though the promoter cannot, strictly speaking, be regarded as an agent, his relation to the future corporation and to the subscribers is of a fiduciary character. He is an intermediary between the corporation and the subscribers, future members, who in the aggregate will form the corporation. His relation to the corporation is analogous to that of an agent to his principal, and the rules governing the relation of principal and agent have been extended to apply to that of the promoter to the corporation. Under all the authorities, he is held accountable to the corporation in like manner as though the relation of principal and agent, in fact, existed.”); Graham v. Oakes, 32 S.W.2d 916, 919 (Tex. Civ. App.—Waco 1930, writ ref'd) (“The facts above recited show without dispute that Oakes and McCullough joined in a mutual attempt to promote the organization of a new corporation to take over the properties, real and personal, of the old corporation which had just gone into bankruptcy. Oakes advanced what was supposed to be a sufficient sum to purchase the properties. When this amount proved insufficient McCullough agreed with him to furnish the additional sum needed himself. Oakes' money was paid out on the purchase price of the properties and McCullough took title thereto in his own name. He therefore, in holding such property, occupied a fiduciary relation toward Oakes and also toward the proposed new corporation when it should come into existence.”).
Promoters may not use their position to misappropriate corporate assets. Dunagan v. Bushey, 152 Tex. 630, 638, 263 S.W.2d 148, 153 (1953) (holding the incorporators “were liable for the return of the corporate assets appropriated by them to their own individual use, and the trial court was in error in instructing a verdict in their favor.”). They may not manipulate stock values to their advantage. Morris v. Leonard, 441 S.W.2d 877, 881–82 (Tex. Civ. App.—Fort Worth 1969, writ ref'd n.r.e.) (“In the promotion, organization, and operation of corporations there is a requisite of ‘good faith’ between parties who are in a fiduciary relationship with one another. There is an inhibition against any manipulation which results in any fraud perpetrated as the result of ‘stockwatering’, particularly as applied to one who profits from the dilution of the substance of financial stability of a corporation.”). They may not otherwise make secret profits at the expense of the future corporation or its subscribers.Com. Bonding & Cas. Ins. Co. v. Thurman, 176 S.W. 762, 763 (Tex. Civ. App.—Amarillo 1915, no writ) (“We do not think promoters who, for their own interest, get up a corporation, can procure for themselves a bonus as commissions and charge it upon the corporation when formed. This would be a breach of faith towards honest stockholders who pay the charter price for the stock, with the expectation of getting it clear of incumbrance.”). The fiduciary duties of the promoters continue through the entire process of promotion, before, during, and even after the actual incorporation.Bailes v. Colonial Press, Inc., 444 F.2d 1241, 1244 (5th Cir. 1971) (“At common law the promoters of a corporation stand in a fiduciary relation to the corporation, charged with the duty of good faith as in cases of other trusts. The fiduciary relation continues until the plan or scheme of promotion has been accomplished. Where the plan contemplates simply the organization of the corporation, the promoters' duties end there; but where the plan includes the continued operation of the corporation, its incurrence of taxes, debts and liabilities, and theprocurement of capital by sale of the corporation's stock to the public, the obligation of good faith continues to the completion of the plan.”).
Where a promoter secures subscriptions by means of fraud, he is individually liable to the defrauded subscribers.See Dunagan v. Bushey, 152 Tex. 630, 640, 263 S.W.2d 148, 154 (1953) (“As to Dunagan's suit in his individual capacity-he properly brought this suit for such individual relief as his pleadings and the proof offered would support, as against the individuals. We do not find any evidence in the record to support an individual cause of action against the Bank. The uncontroverted testimony shows that Dunagan was entitled to receive stock in Tem-Trol, Inc. from White, Bushey and Hill in an amount of $5,000 and he should have had a judgment against White, Bushey and Hill establishing his interest in the corporation to this stock. As to his individual claims for damages against White, Bushey and Hill, the evidence raised a fact issue which should be submitted to a jury, and the cause must be reversed.”). If the corporation adopts the subscription contracts and accepts the benefits of the fraud, then the corporation is also liable, even if it did so innocently.Cator v. Com. Bonding & Cas. Ins. Co., 216 S.W. 140, 143 (Tex. Comm'n App. 1919) (“The corporation accepting a subscription to its capital stock procured by one technically not its agent, through fraudulent misrepresentations made without its authority, not only adopts the act of such a one in receiving the subscription, but also impliedly adopts and becomes responsible for any false and fraudulent representations which may have been made to induce the subscription. That the corporation was without knowledge or notice of the fraud is immaterial.”). See also Coastal Shutters & Insulation, Inc. v. Derr, 809 S.W.2d 916, 920 (Tex. App.—Houston [14th Dist.] 1991, no writ) (“In Texas an entity not yet incorporated will still be held liable for pre-incorporation acts that are ratified or from which the entity derives benefit.”).
Causes of Action Based on Pre-Incorporation Conduct
The law clearly holds that multiple promoters, prior to the incorporation, are treated as general partners.Hollister v. McCamey, 115 Tex. 49, 52, 274 S.W. 562 (1925) (“Under the rules announced in that case, plaintiffs in error are liable as partners for the debts of the Hollister Oil Company, including the debt to defendant in error.”); Graham Hotel Corp. v. Leader, 241 S.W. 700, 702 (Tex. Civ. App.—Fort Worth 1922, no writ) (“They both testified that they and Bryant entered into an agreement to build and operate a hotel in Graham; that the hotel company was to be incorporated when they had sold and had subscribed all of its stock. But preliminary to this being done, they organized a trust estate, elected themselves trustees and officers, and proceeded to try to sell the corporate stock. We think under this arrangement they were liable as partners for any debts incurred to any one who was, at least, without notice of any limitation as to the liability of Arnold and Gallaher for any debts incurred by Bryant in the organization of the corporation.”); Vaughn v. Morris, 180 S.W. 954, 955 (Tex. Civ. App.—Amarillo 1915, no writ) (“The proposed promoters of this road were working together in furthering whatever scheme they had. Nothing appearing to the contrary, they will be presumed to be partners.”). These cases usually arise in the context of liability to third parties on obligations that the promoters made on behalf of the future corporation. As noted above, promoters are individually liable for corporate obligation that they make before there is a corporation. Where there are multiple promoters, all are held jointly and severally liable, not based on their individual involvement in making the obligation, but based on the theory that the promotional enterprise constitutes a general partnership prior to the formation of the corporation.
Generally speaking, promoting a future corporation does fit the definition of a partnership. As there is no corporate entity (yet), the enterprise must be something. The concepts of a sole proprietorship (where there is only one promoter) or a partnership (where there are more than one) make sense. However, not only are partners jointly and severally liable to third parties, they owe fiduciary duties to each other and are individually liable for the breach of those duties.
As will be developed later, shareholders of small closely held corporations frequently come together and organize prior to incorporation. During that time, the parties are members of a general partnership. The fiduciary duties that the law imposes on partners might give rise to legal protections for promises made or wrongdoing committed during the time that formal fiduciary duties are imposed by law—duties that no longer exist among the shareholders after incorporation.
Legal issues sometimes arise when a corporation begins actually doing business prior to its incorporation or where the initial attempts at incorporation are unsuccessful because of some defect in the filing. Cases involving these legal issues are extremely rare because the procedure for forming corporation under the Business Organizations Code is so simple that it is very difficult to screw up. The common law developed two doctrines to deal with these legal issues prior to the adoption of the Code: defacto corporations and corporation by estoppel.
The defacto corporation doctrine provided that the entity would be treated as a corporation if it was sufficiently formed so that there was a “good faith” or “colorable” attempt to comply with the statute and an actual use of the corporate privilege.See Payne v. Bracken, 131 Tex. 394, 115 S.W.2d 903 (Comm'n App. 1938); American Salt Co. v. Heidenheimer, 80 Tex. 344, 15 S.W. 1038 (1891); Bank of De Soto v. Reed, 50 Tex. Civ. App. 102, 109 S.W. 256 (1908, no writ). The Code establishes a “bright-line” rule as to when a corporation comes into existence. The corporation's existence commences when the certificate of formation is accepted as conforming and filed by the Secretary of State.See Tex. Bus. Orgs. Code Ann. §§ 3.001(c), 4.051. The Secretary’s issuance of an acknowledgment of the filing of a certificate of formation is conclusive evidence of: (a) the formation and existence of the corporation; (b) the satisfaction of all requirements to form a corporation; and (c) the authority to transact business in Texas.See Tex. Bus. Orgs. Code Ann. § 3.001(d).
These provisions were intended to eliminate the de facto corporation doctrine.20 Tex. Prac., Business Organizations § 26:12 (3d ed.). See Tex. Bus. Corp. Act. Ann. art. 3.04 (expired), Comment of Bar Committee—1955. The Texas scheme is similar to that contained in the Model Business Corporation Act, which provides that, except in a dissolution proceeding brought by the state, “[t]he secretary of state's filing of the articles of incorporation is conclusive proof that the incorporators satisfied all conditions precedent to incorporation.” Model Bus. Corp. Act § 2.03(b) (2005). In other jurisdictions, there is substantial authority for the proposition that the Model Act's procedures eliminate the de facto corporation doctrine. See Swindel v. Kelly, 499 P.2d 291, 299 n.28 (Alaska 1972); Booker Custom Packing Co., Inc. v. Sallomi, 149 Ariz. 124, 716 P.2d 1061 (Ct. App. Div. 2 1986); Robertson v. Levy, 197 A.2d 443, 447 (D.C. 1964);.
Where there is an inadvertent failure to file the certificate or some defect in the certificate that results in a rejection by the secretary of state, the results may be disastrous as the shareholders may be held to be individually liable on corporate obligations as members of a general partnership.See Roland v. Republic Nat. Bank of Dallas, 463 S.W.2d 747 (Tex. Civ. App.—Waco 1971, writ ref'd n.r.e.) (there was no attempt to incorporate and one “shareholder” was bound by the withdrawal of funds by another “shareholder,” since the parties were “joint venturers”). However, it is likely that this liability would only apply to active participants, not to passive investors.
Corporation by estoppel arises in three situations: (a) a corporation may not escape its own obligations based on its failure to incorporate properly;See, e.g., Ex parte AmSouth Bank of America, 669 So. 2d 154 (Ala. 1995); Empire Mfg. Co. v. Stuart, 46 Mich. 482, 9 N.W. 527 (1881); School Consolidated Dist. No. 10 of Arbyrd v. Wilson, 345 Mo. 598, 135 S.W.2d 349 (1939); Sun River Stock & Land Co. v. Montana Trust & Savings Bank, 81 Mont. 222, 262 P. 1039 (1928); (b) a third party may not avoid a contract with the corporation based on a defect in the incorporation;See Lamb v. Beaumont Temperance Hall Co., 2 Tex. Civ. App. 289, 21 S.W. 713 (1893, no writ); see also, e.g., Lettinga v. Agristor Credit Corp., 686 F.2d 442, 34 U.C.C. Rep. Serv. 1041 (6th Cir. 1982).Cf. Cavaness v. General Corp., 272 S.W.2d 595 (Tex. Civ. App.—Dallas 1954), aff'd, 283 S.W.2d 33 (Tex. 1955) (holding that a promoter could not deny the existence of the corporation to claim the individual benefit of a contract based on corporation by estoppel); (c) shareholders of a defectively incorporated entity do no lose their limited liability protection when a third party understands his contract to be with the corporation.See Empire Mills v. Alston Grocery Co., 15 S.W. 505, 4 Willson 346 (Tex. Ct. App. 1891, no writ); see also, e.g., Snider's Sons Co. v. Troy, 91 Ala. 224, 8 So. 658 (1890); Jennings v. Dark, 175 Ind. 332, 92 N.E. 778 (1910); Cranson v. International Business Machines Corp., 234 Md. 477, 200 A.2d 33 (1964); Industrial Bldg. & Loan Ass'n v. Williams, 1928 OK 376, 131 Okla. 167, 268 P. 228 (1928). It is unclear whether the bright-line rule in the Code for the existence of the corporation also eliminates the corporation by estoppel doctrine. Other jurisdictions with similar statutes continue to recognize that third parties dealing with a defective corporation may not escape their contractual obligations.See Namerdy v. Generalcar, 217 A.2d 109 (D.C. 1966); Cahoon v. Ward, 231 Ga. 872, 204 S.E.2d 622 (1974). See also Montana Ass'n of Underwriters v. State, By and Through Dept. of Administration, 172 Mont. 211, 563 P.2d 577 (1977) (refusing to void a contract entered into by an entity that had not yet received its certificate of incorporation); Bankers Trust Co. of Western New York v. Zecher, 103 Misc. 2d 777, 426 N.Y.S.2d 960, 29 U.C.C. Rep. Serv. 323 (Sup 1980) (refusing to void a mortgage granted by an entity to which a certificate of incorporation had not yet been issued). Many states continue to recognize that shareholders are immune from liability when the third party understands that he is dealing only with the purported corporation.See Robertson v. Levy, 197 A.2d 443, 447 (D.C. 1964); In re Estate of Woodroffe, 742 N.W.2d 94, 103 (Iowa 2007); Equipto Div. Aurora Equipment Co. v. Yarmouth, 134 Wash. 2d 356, 950 P.2d 451, 456 (1998).But see Cranson v. International Business Machines Corp., 234 Md. 477, 200 A.2d 33 (1964). One Texas court has suggested in dicta that a creditor may be estopped from attacking the corporate existence of an apparent corporation even though it is neither a “de jure” nor “de facto” corporation. See A to Z Rental Center v. Burris, 714 S.W.2d 433, 436 (Tex. App.—Austin 1986, writ ref'd n.r.e.).
A contract to acquire shares from a corporation is termed a “subscription.” Sec. § 1.002 (84) A subscription must be accepted in writing by the corporation. Sec. 21.165(a) A subscription with an existing corporation is simply a contract between the subscriber and the corporation. Sec. 21.165(c) A subscription may also be made prior to the formation of the corporation between the organizers and the subscriber to acquire shares in the newly-formed corporation.
Pre-incorporation subscriptions were difficult to enforce under the common law.
Contracts of subscription, prior to incorporation, differ in some respects from ordinary contracts, and are not governed entirely by the general principles of the law of contracts. They also have elements differentiating them from other contracts of promoters. Strictly speaking, there can be no subscription to the capital stock of a corporation prior to incorporation, because, until organized, there is no capital stock. Technically and without reference to statutory provisions, they are contracts to subscribe rather than contracts of subscription.Cator v. Com. Bonding & Cas. Ins. Co., 216 S.W. 140, 142 (Tex. Comm'n App. 1919).
Under the Business Organizations Code, a pre-incorporation subscription is irrevocable for six months if the subscription is in writing and signed by the subscriber, unless either the subscription agreement provides for a different term or if all subscribers agree to the revocation. Sec. 21.165(b) The corporation may determine the payment terms of a preformation subscription, which may be payment in full or by installments, unless the subscription agreement specifies the terms. Sec. 21.166(a) Unless otherwise provided in the agreement, the corporation is required to make payment calls on all subscribers of similar interests uniform as far as practicable. Sec. 21.166(b) If the subscriber fails to pay any call or installment when due after the corporation is formed, the corporation may either proceed on collection of the debt or elect to forfeit the subscription if the debt remains unpaid for 20 days after written notice. Sec. 21.166(c). A forfeiture immediately terminates the rights and obligations of the subscriber, but the corporation is permitted to retain any amounts already paid. Sec. 21.166(d)