what is pre-incorporation contract ?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Uma asked over 3 years ago

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4 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 lochan answered over 3 years ago

**PRE-INCORPORATION CONTRACT** The promoters of a company usually enter into contracts to acquire some property or right for the company which is yet to be incorporated, such contracts are called preliminary or pre-incorporation contracts. The promoters .generally enter into such contracts as agents for the company about to be formed. The legal position is that since presence of two consenting parties is necessary for a contract, and the company before incorporation is a non-entity, the promoters cannot act as agents for the company, which has yet to come into existence. As such, the company is not liable for the acts of the promoters done before its incorporation. When the company comes into existence, it is not bound by the pre-incorporation contracts even when it takes the benefit of the work done on its behalf. However, specific performance of a contract between a third party and the promoters may be successfully claimed by the third party against the company, when the company enters into possession of the property on the faith of the promoters’ contract. Similarly, the company, after incorporation, cannot enforce any contract made before its incorporation, which means the company cannot sue the other party to the contract if the other party fails to carry out the contract. Promoters remain personally liable on the contract. A company also cannot ratify a contract entered into by the promoters on its behalf before its incorporation. Therefore, it cannot by adoption or ratification obtain the benefit of the contract purporting to have been made on its behalf before it came into existence, as ratification by the company when formed is legally impossible. The doctrine of ratification applies only if an agent contracts for a principal who is in existence and who is competent to contract at the time of the contract by the agent. Where a contract is made on behalf of principal known to both parties to be non-existent, the contract is deemed to have been entered into personally by the actual maker, i.e. the agent. A company may, if it desires, enter into a new contract, after its incorporation, with the other party which is known as novation of promoter’s contracts; and if it makes a fresh contract in terms of the preliminary contract, the liability of the promoters comes to an end and if it does not make a fresh contract within a limited, period of time, either of the parties may rescind the contract. The essential feature of novation is that the right under the original contract is relinquished and a new right referable to a new contract is created. The substituted contract must, in order to effect a novation, be enforceable one. The pre-incorporation agreements entered into by the promoters acting on behalf of the intended company with third party cannot always be avoided for various reasons. These agreements affect the operations of the incorporated company. Thanks

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered over 3 years ago

Any contract or transactions which purports to be made by or on behalf of the company before its incorporation. A contract made by promoters on behalf of the company before its incorporation is termed as pre-incorporation contract.It is correct to say that a company can’t retify PIC.A company gets its legal status only after incorporation.Therefore,the only remedy open to the company after incorporation is to enter into a fresh contract.

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Data?1494421730 rohit awasthi answered over 3 years ago

Dear Uma > Pre-incorporation contract Any contract or transactions which purports to be made by or on behalf of the company before its incorporation. A contract made by promoters on behalf of the company before its incorporation is termed as pre-incorporation contract.It is correct to say that a company can’t retify PIC.A company gets its legal status only after incorporation.Therefore,the only remedy open to the company after incorporation is to enter into a fresh contract. The promoters while entering into preliminary contracts are treated as agents of the company that is about to be formed. The legal position is that for a valid contract two consenting parties are necessary and a company before incorporation is a non-entity. A pre-incorporation contract which is purported to be made by the company which does not exist, is a nullity . Thus when the company comes into existence it can neither sue nor be sued on that contract Thanks

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Open uri20170510 32134 tcchcu?1494421832 Jitendra Suthar answered over 3 years ago

Hiii Uma Pre Incorporation Contract -------------------------- A pre-incorporation agreement is entered into by the corporate promoters, who form the company by filing its Articles of Incorporation. Since the corporation has not been formed yet, it cannot be a party to the agreement. If the corporation is not formed or if it fails to adopt the agreement, the promoters can be held personally liable for any breach of the agreement. Regards,

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