What Are The Effect Of Pre-incorporation Contract?

by | Last updated on January 24, 2024

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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.

What is pre-incorporation contract?

3 In sum, a pre-incorporation contract is

a contract entered into on behalf of the yet to be formed company

. As the name shows, a post incorporation contract is a contract entered into by a company after incorporation. That is , the contract comes into play when a company is duly formed and registered under Act 179.

What is the purpose of a pre-incorporation contract?

The pre-incorporation agreement

outlines who will own what and how profits will be split for all parties involved

. It also ensures that each party understands their role in the company, their rights and responsibilities as well as any compensation or benefits they are to receive during their time with the company.

What is the validity of pre-incorporation contract?

In order for a pre-incorporation contract to be valid, it must be entered into by the promoters of the company, in their capacity as promoters of the company that they intend to create.

What are the effects of pre-incorporation contracts?


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.

What are the legal position of pre-incorporation contracts?

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.

What are the legal status of pre-incorporation contract?

Legal status of Pre-incorporation contract

Hence,

the company can’t enter into a contract before it comes into existence

, and it comes into existence only after its registration. It may be argued that, the pre-incorporation contract is entered into by the promoters on behalf of the company.

Can a company enter into contracts pre-incorporation?

Before a company is incorporated,

it cannot enter into commercial contracts

. … A contract entered into by a party on behalf of a company, where that company has not yet been formed, is called a pre-incorporation contract.

Who is liable for pre-incorporation contracts?


Promoters are generally held personally liable

for pre-incorporation contract. If a company does not ratify or adopt a pre-incorporation contract under the Specific Relief Act, then the common law principle would be applicable and the promoter will be liable for breach of contract.

What is the concept of incorporation?

Incorporation is

the legal process used to form a corporate entity or company

. A corporation is the resulting legal entity that separates the firm’s assets and income from its owners and investors. … It is the process of legally declaring a corporate entity as separate from its owners.

What is the Turquand rule?

The common-law Turquand rule in South African law

protects persons from being affected by a company’s non-compliance with an internal formality pertaining to the authority of its representatives

. … Section 20(7) of the Companies Act 71 of 2008 attempts to protect bona fide third parties dealing with companies.

Who is eligible to act as an member of one person company?

Who is eligible to act as a member of an OPC?

Only a natural person who is an Indian citizen and resident in India

shall be eligible to act as a member and nominee of an OPC.

What do u mean by certificate of incorporation?

A certificate of incorporation is

a legal document/license relating to the formation of a company or corporation

. It is a license to form a corporation issued by state government or, in some jurisdictions, by non-governmental entity/corporation.

What happens if promoter makes any secret profit during pre-incorporation stage?

A promoter is not forbidden to make profit but to make secret profits.

He may make a profit out of promotion with the consent of the company

, in the same way as an agent may retain a profit obtained through his agency with his principle’s consent.

Who Cannot become a member of a company?

4/72 dated 09.03. 1972,

a firm not being

a person cannot be registered as a member of the Company. Such firm can be a member of section 8 company. In the case of partners, a firm as such cannot be registered as a member, but the partners in their individual names may be registered as joint holders of the shares.

Can a promoter lawfully contracts with a company he has formed?

The promoters

enter into preliminary contracts

, generally as agents or trustees of the company. Such contracts are not legally binding on the company because two consenting parties are necessary to a contract whereas the company is nonentity before incorporation.

Ahmed Ali
Author
Ahmed Ali
Ahmed Ali is a financial analyst with over 15 years of experience in the finance industry. He has worked for major banks and investment firms, and has a wealth of knowledge on investing, real estate, and tax planning. Ahmed is also an advocate for financial literacy and education.