What are the effects of incorporation of a company?
Wednesday, March 30, Pre-incorporation contracts: A contract is that legal obligation by which a legal entity ascertains its legal status. Contracts can be considered as the basis of these formalities. As the formation of these contracts involve various discussions at different stages by more than one person pre-incorporation contracts become inevitable.
A company normally will not be able to enter into a contract without coming into existence. Usually a pre-incorporation contract comes into existence prior to the formation of a company.
Such contracts will be entered into by the promoters of a company on behalf of the company before the company comes into existence.
These promoters are the people who are involved in the formation of a company. They deal with the required formalities of a company's registration from finding directors and share holders to doing negotiations for business contracts for the new company. But is it possible for a company which is not in existence to enter into an enforceable contract on behalf of the company?
According to common law, a company before existence cannot attain a legal status to attain contractual rights or sustain contractual liabilities existing from a pre-incorporation agreement and so the pre-incorporation agreements cannot oblige a company.
In each case promotion of a company varies according to the factual circumstances.
Those aspects range from the day when the promoters begin to make contacts on behalf of the company to the starting of the company continuing to the day when the directors of the company take their place.
The status of the promoters cease to exist immediately after the formation of the board of directors and from then onwards they start controlling the company.
|Corporate Name||Before incorporation, the company is not an artificial legal person or separate legal entity. So, it has not right to sue and be sued, may not buy and holds properties in its own name.|
|Pre-incorporation Contracts - Lexology||Wednesday, March 30, Pre-incorporation contracts:|
|What are the effects of Pre incorporation contract on the company||Since the corporation has not been formed yet, it cannot be a party to the agreement. If the corporation is not formed or if it fails to adopt the agreement, the promoters can be held personally liable for any breach of the agreement.|
|Pre Incorporation Contract Law and Legal Definition | USLegal, Inc.||Pre Incorporation Contract Pre Incorporation Contract Law and Legal Definition A pre incorporation contract is one which is purportedly made by or on behalf of a corporation at a time when the corporation has not yet been incorporated.|
|Pre Incorporation Contract Law and Legal Definition | USLegal, Inc.||Since the corporation has not been formed yet, it cannot be a party to the agreement. If the corporation is not formed or if it fails to adopt the agreement, the promoters can be held personally liable for any breach of the agreement.|
In the process they may be required to constitute different types of contracts. The promoters of the company may enter into contracts on behalf of the proposed entity which they may refuse to approve or consent once it is incorporated.
These contracts include pre-incorporation contracts, provisional contracts and residuary contracts.
Baxter 2LR 2CP  was one of the first case to consider pre-incorporation contracts. The court held a pre-incorporation contract shall exist when the individual who actually acted as a promoter or agent on behalf of the non-existing entity would be legally liable.
Baxter thus confirmed that a company cannot ratify a contract, or purported contract, entered into on its behalf if the company was not in existence at the time a person purported to enter into a contract on its behalf.
Baxter also highlighted the potential for promoters to be liable on contracts they purport to enter into on behalf of an as yet unincorporated entity. What was not clear after Kelner v.Section 45 of the Companies Act deals with "pre-incorporation" contracts, i.e.
contracts purported to be entered into by or on behalf of a company before it is incorporated. Business-in-a-Box. A pre incorporation contract is one which is purportedly made by or on behalf of a corporation at a time when the corporation has not yet been incorporated.
Because the corporation named in the promoter's contract has not been formed at the time the contract is made, the corporation when formed is not bound by the contract. Pre-incorporation contracts and the promoter Introduction.
but the legal effect of contract does not entirely lack. And even in that situation the promoter or representor are personally liable for the pre-incorporation contract.
The principle of novation of pre-incorporation contract is applicable in above three counties, the reason. Legal Effect On Pre Incorporation Contract.
The common law view of pre-registration contracts was that the company did not exist for legal purposes until it had been formally incorporated (registered).
This common law view resulted in company's being unable to enter a binding contract until they had been registered. countries follow this rule to the effect that no pre-incorporation contract is binding upon a company, nor can the company adopt a pre-incorporation contract.