Pre-Incorporation Contracts 1. Meaning: Entered by promoters on behalf co. before its existence. 2. Legal Position: • There must be two parties to a contract. But before incorporation, it is not an entity. • Hence, contract never binds the company. 3. Cannot ratify –Only option is to enter into a new contract. 4. Specific Relief Act: Can be enforced if it is warranted by the terms of incorporation, if: • Promoters entered into a contract before the incorporation • For the purposes of the company • Within the scope of company’s objects • Company accepted the contract after the incorporation and communicated to other party. 5. Personal liability: Promoters are personally liable. But exception is, if the agreement provides that: • Liability shall cease if co. adopts and • Either party may rescind the contract. Provisional Contracts - • In the case of a public company, contracts made after incorporation but before CCB. • They are not binding until the co. is entitled to commence business. • On getting CCB-automatically become binding, i.e., without any ratification. • If the co. goes into liquidation, without commencing business cannot be enforced at all.
Posted on: Sun, 27 Apr 2014 03:45:00 +0000
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