A pre-incorporation contract is intended as a temporary agreement on legal arrangements prior to the actual act of incorporation .
What is the meaning of pre-incorporation contract?
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 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.
Is a company bound by a pre-incorporation contract?
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 .
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 legal position of contract made before incorporation?
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 . But here also, is a tangle.
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 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 do you mean by certificate of incorporation?
So, a certificate of incorporation is a certificate that governmental or non-governmental institution issues to a business owner . The main aim of the certificate is to prove the proper incorporation and company’s existence.
Does a pre-incorporation contract have to be written?
The only legal formalities for a valid pre-incorporation contract under the new Companies Act are thus that the contract must be in writing and must be entered into in the name of or on behalf of the company still to be formed.
What is profit or loss prior to incorporation?
• “Profit prior to incorporation” is the profit earned. or loss suffered during the period before incorporation. It is a capital profit and is not legally available for distribution as dividend because a company cannot earn a profit before it comes into existence.
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.
How do you ratify a pre-incorporation contract?
Ratification of the pre-incorporated contracts
Accept the contracts by passing a contract acceptance resolution and the action of promoter for incorporating the company and related matters.
Which party 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.
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.
