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. … When the pre-incorporation contract is made,
the corporation is not in existence
and therefore cannot be a party to the contract.
What is a pre incorporate contract?
A pre-Incorporation contract is
a contract that is entered into by a person who is acting on behalf of a company that does not exist
. The person entering into the agreement has the intention that once the company comes into existence the company is to be bound by the provisions of the pre-incorporation contract.
What is the purpose of a pre-incorporation contract?
Pre-Incorporation Agreements (or Pre-Incorporation Contracts)
establish the operations, management, and define who will have control prior to the initial corporate meeting
. In addition to the pre-incorporation agreement, many business owners draft a shareholders agreement and a confidentiality agreement.
What is the legal position of contract made before incorporation?
When the pre-incorporation contract is made, the corporation is not in existence and therefore cannot be a party to the contract.
The promoter
thus must be a party to the contract, and, under agency law principles, the promoter will be personally bound as an agent acting on behalf of a non-existent principal.
What is the legal status of a pre-incorporation contract?
When the pre-incorporation contract is made,
the corporation is not in existence and therefore cannot be a party to the contract
. The promoter thus must be a party to the contract, and, under agency law principles, the promoter will be personally bound as an agent acting on behalf of a non-existent principal.
Who is liable for pre-incorporation contract?
The promoter remains personally
liable for pre-incorporation contracts he enters into, even after corporate adoption, unless and until there has been a novation.
What is the effect of pre-incorporation contract?
The company cannot be sued on
the preliminary Contracts even though when it comes into existence and takes the benefit thereof. The company cannot be sued for those expenses, which are incurred before its incorporation because it was not in existence when the expenses were actually incurred.
Why profit prior to incorporation is calculated?
Profit prior to incorporation is
the profit earned or loss suffered during the period before incorporation
. It is a capital profit and not legally available for distribution as dividend because a company cannot earn a profit before it comes into existence.
Does a pre-incorporation contract have to be written?
The only formal requirement for the conclusion of a pre-incorporation contract is
that it must be reduced to writing
. … There is no correct way to phrase such a clause, but to ensure that the contract will be legally enforceable the construction of the clause is important.
Does our common law allow for pre-incorporation contract?
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'.
Are pre-incorporation contracts enforceable in South Africa?
‘To the extent that a pre-incorporation contract or action has been ratified or regarded to have been ratified in terms of subsection (5) the agreement is
as enforceable against the company as if the company had been a party to the agreement when it was made
.
How do you treat profit prior to incorporation?
Thus, any profit/loss made before the incorporation is known as “Profit (Loss) Prior to Incorporation” which is treated as a
capital profit
and the same cannot be distributed as business profit. Hence, it cannot be distributed by way of dividend.
What are profit prior to and after incorporation?
Hence prior period item are those item which is done before incorporation of the company. Profit prior to incorporation is the profit earned or loss suffered during the period before incorporation. … Profit earned after incorporation is
revenue profit, which is available for dividend
.
How is profit prior to incorporation treated as Mcq?
Capital Profit
: The profit earned up to the date of incorporation of the company is a capital profit, because these profits have been earned before the company came into existence. Such profits are known as profit prior to incorporation and transferred to the Capital Reserve a/c.
Can a close corporation be converted to a state owned company?
A Close Corporation may not be converted into a state-owned Company
. As with a Company's MOI, the Association Agreement of a Corporation constitutes a contract between the ‘Corporation' and the Members and between the Members inter se.
