What is meant by 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?
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 effect of a pre Incorporated contract on the company?
The reason is because there is no company in existence before its incorporation. The rule is that the company only exists when it is registered. The effects of this type of contract under common law are totally negative effects for outsiders of the said company. This is because the contract cannot be ratified.
What is the position of a pre Incorporated contracts?
A pre-incorporation contract refers to a contract where one party of the contract is a company that is yet to be incorporated. The key issue in this case is whether either Lead Balloon or Jeremy will be bound by the pre-incorporation contract.
Are pre-incorporation contracts valid?
The validity and enforceability of the pre-incorporation contracts is always in question. In case, the said contract is not accepted by the company in its meeting, such contract is binding to the promoters and the both, promoters and other party may demand specific performance against each other.
Are pre-incorporation contracts enforceable?
These types of contract are called ‘Pre-incorporation Contract’. Therefore, Pre-incorporation contracts, though at first stage may appear to be with no legal status but they are very much legally acceptable and enforceable in the tribunal and courts.
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?
The Court held that the promoters are personally liable for the pre-incorporation contracts. In Weavers Mills Ltd. v. Balkies Ammal AIR 1969 Mad 462 case, promoters had agreed to purchase some properties for and on behalf of the company to be promoted.
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 happens if he makes any secret profit during pre-incorporation stage?
They cannot depend on contract, because at the time the promotion begins, the company is not incorporated, and so cannot contract with its promoters. If a promoter makes a secret profit or does not disclose any profit made, the company has a remedy against him.
Can a company have only one promoter?
1. If there is more than one promoter in a company then the promoter can claim against another promoter for the damages and compensation paid by him. 2. If any untrue statement is given in the prospectus and for the secret profits then the promoters will be held liable severally and jointly as well.
What is the legal position of promoter?
The legal position of promoters is that he is neither agent nor employee of the company but he stands in fiduciary capacity. Fiduciary capacity brings two duties of promoters i.e. duty not to make secret profit and duty to disclose to company.
What qualities are required for a promoter?
To succeed in a career as a promoter, you need to have an outgoing personality and a willingness to talk to people and develop relationships, which requires excellent interpersonal skills. You also need to project enthusiasm for the event, product, or service you are promoting.
What does being a promoter mean?
A promoter is a supporter, advocate, or booster for a person, group, or event. A promoter is an active supporter of something. A promoter of democracy, for example, is someone who tries to spread democracy throughout the world.