What is the 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.
Why would a company enter into a pre-incorporation 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. 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.
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.
What is a pre-incorporation contract explain why a company is generally not liable under such a contract?
Before the date of incorporation, the company does not exist and has no capacity to contract. The company is generally not liable on such contracts. A person who purports to contract as agent for a non-existent Principal is personally liable on the contract.
Who is liable for pre-incorporation contract?
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 legal status of a pre-incorporation contract?
The Companies Act 71 of 2008, defines a pre-incorporation contract as being one that is ‘entered into before the incorporation of the company by a person who purports to act in the name of or on behalf of the company with the intention that the company will be incorporated and thereafter be bound by the agreement. ‘
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.
Does our common law allow for pre incorporation contract?
To overcome the difficulty presented by this common law rule, section 21 of the Companies Act, No. Unlike the 1973 Companies Act, the 2008 Act does not stipulate any formal requirements for a pre-incorporation contract, other than it must be in writing.
What is the other name of pre-incorporation contract?
Contracts which are entered into by promoters with parties to acquire some property or right for and on behalf of a company yet to be formed are called as ‘pre-incorporation contracts’ or ‘preliminary contracts’.
Do Authorised shares have rights?
The authorised shares are the shares which the company is entitled to issue in terms of its MOI. Authorised shares have no rights associated with them until they have been issued. The issued shares are shares that are authorised and issued to shareholders, and to which certain rights are then attached.
Are pre-incorporation contracts enforceable in South Africa?
A company has no legal existence until it is incorporated in terms of the Companies Act, 71 of 2008 (as amended) (“the Act“). As such, any agreement it purportedly concludes prior to such incorporation is invalid and unenforceable.
What do you mean by incorporation?
A company comes into existence is generally by a process referred to as incorporation. Once a company has been legally incorporated, it becomes a distinct entity from those who invest their capital and labour to run the company.
What is the purpose and effect of the corporate veil?
The corporate veil definition is a legal concept that separates the actions of an organization to the actions of the shareholder. In addition, it protects them from being liable for the company’s actions.
Can an unregistered company enter into a contract?
The outline of the provisions by way of brief points is: No member of an unregistered firm can enforce his rights under the partnership contract against either the firm or any present or past member of it, nor can the firm sue its customers on their contracts.
What are consequences of non-registration?
Consequences of Non- Registration of partnership
- It cannot enforce its claims against the third party in a court of law.
- It cannot file a legal suit against any of its partners.
- Partners of an unregistered firm cannot file any suit to enforce a right against the firm.
What are the effects of non-registration?
Consequences of Non-Registration of Firms
- No suit to enforce rights under the Act.
- No suit to enforce rights against any third party.
- No proper relief.
- Partners cannot bring legal action against each other.
- Powers which are given to the unregistered firms.
How can a company enter a contract?
However, unlike individuals, companies can only enter contracts through the actions of its operators, such as directors or company secretaries….2. Common Seal
- two directors of a company;
- one director and one company secretary; or.
- the sole director who is also the company secretary, for proprietary companies only.
Can a company secretary sign contracts on behalf of a company?
As an employee of the company, a secretary will in any event often have actual authority delegated by the board to enter into commercial contracts on behalf of the company. by the signature of two directors; by the signature of a director and the secretary.
Can members of the company can enter contract with the company?
Shareholders are also known as the members of a company. It appears that any person who is competent to enter into a valid contract (as per the Contract Act, 1872) can become a member of a company. Subscribing for shares is a contract between the company and the shareholder.