What are the requirements of a pre-incorporation contract?

What are the requirements of a pre-incorporation contract?

The Companies Act 71 of 2008, defines a pre-incorporation contract as being one that is ‘entered into before the incorporation of the company by a person who purports to act in the name of or on behalf of the company with the intention that the company will be incorporated and thereafter be bound by the agreement. ‘

What is pre-incorporation contract explain briefly?

A pre-incorporation contract is an agreement that is made by a person at the behest of a company or corporation that does not exist at the time of signing such agreement. These agreements are entered into as there are preliminary contracts and expenses incurred before an organization takes form.

Which contract is known as pre-incorporation contract?

Contracts which are entered into by promoters with parties to acquire some property or right for and on behalf of a company yet to be formed are called as ‘pre-incorporation contracts’ or ‘preliminary contracts’.

What is the legal position of pre-incorporation contracts?

Before a company is incorporated, it has no legal existence. Accordingly, it has no capacity to enter into a contract. The company cannot sue or be sued on a pre-incorporation contract. However, persons who conclude contracts for the unborn company can be held personally liable on such contracts.

Why a company is not liable under a pre-incorporation contract?

Answer to all those question would be simple. The company does not in legal existence at time of pre-incorporation contract. If someone is not in legal existence, then he cannot be a party to contract, and ‘Privity to Contract’ doctrine excludes company from the liability.

Why pre-incorporation contract is important?

Pre-incorporation Contract The promoter is obligated to bring the company in the legal existence and to ensure its successful running,; and in order to accomplish his obligation he may enter into some contract on behalf of prospective company. These types of contract are called ‘Pre-incorporation Contract’.

What is pre-incorporation period?

Pre-Incorporation Period Profits of a Company Thus, any profits made by a private company before incorporation and a public company before commencement of business, respectively, are the pre-incorporation period profits.

What are pre-incorporation documents?

PRE-INCORPORATION CONTRACTS. Are contracts purported to be made on behalf of the company before its incorporation[16]. Pre-incorporation contract is defined in Section 72 as “any contract or other transaction purporting to be entered into by the company or by any person on behalf of the company prior to its formation”.

Is pre-incorporation contract enforceable?

A company comes into being from the date in its certificate of incorporation. Prior to this a pre-incorporation contract cannot be enforced by or against the company, for it is not possible to contract with a non-existent person.

Why is a company not liable under a pre-incorporation contract?

Which of the following parties is not liable on a pre-incorporation contract?

Company is not liable for the pre-incorporation contract when it come in existence, but under the arrangement of section 15(h) and 19(e) of the Specific Relief Act 1963, company can take the rights and liability of promoter.

What does pre-incorporation mean?

Definition of preincorporation : existing or occurring before the formation of a corporation the preincorporation period/process preincorporation expenses a preincorporation contract.

What is a pre incorporation contract law?

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. Because the corporation named in the promoter’s contract has not been formed at the time the contract is made,

What is a pre incorporation stock purchase agreement?

Corporations Pre Incorporation Law and Legal Definition. A stock subscription, strictly defined, is an agreement to purchase, at a certain price, a stated number of shares of stock of a corporation which is to be formed, although the term is also used in postincorporation stock sales agreements.

Is a promoter personally liable for pre-incorporation contract?

Although under common law promoter is personally liable for the pre-incorporation contract, but there are some scope where the promoter can sift his liability to company. He can shift to company his liability under the Specific Relief Act 1963 or he can go for novation under contract law.

When does a company become bound by a pre-registration contract?

The statutory law has a different approach. Unlike the common law Section 131(1) states that the company becomes bound by the pre-registration contract if the company ratifies the contract within in the reasonable time after the incorporation.