Can a company be sued on pre-incorporation contract?

Can a company be sued on pre-incorporation contract?

Under the Specific Relief Act 1963, Section 15(h) and 19 (e) are the two-main important section which tackle the problem of the pre-incorporation contract. Under this provision promoter can give right to sue to sue the company with the help of provisions of Specific Relief Act 1963.

Are pre-incorporation contracts legally valid?

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 is a pre-incorporation contract in company law?

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.

Who is liable for pre-incorporation contract?

Promoters
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.

Why is a company not liable under a pre-incorporation contract?

The company cannot take the liability of pre-incorporation contracts through adoption or ratification; because a stranger cannot ratify or adopt the contract and the company was a stranger because it was not in existence at the time of formation of the contract.

Can a company back out from pre-incorporation contract?

The Company may replace the promoter from the pre-incorporation contract in the situation of Novation of Contract. Though it could be said that such a contract would not be called a pre-incorporated contract, but it should be called a post-incorporation contract; as novation of contract results in a new contract.

What are the legal 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 are the legal status of pre-incorporation contract?

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.

What is the purpose of a pre-incorporation contract?

Section 1 of the Act defines a PIC as “a written agreement entered into before the incorporation of a company by a person who purports to act in the name of, or on behalf of, the proposed company, with the intention or understanding that the proposed company will be incorporated, and will thereafter be bound by the …

What is breach of pre-incorporation contract?

Indian Legal System > Civil Laws > Company Law > Pre-incorporation Contracts. 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.

Why pre-incorporation contract is important?

Pre-Incorporation Agreements (or Pre-Incorporation Contracts) establish the operations, management, and define who will have control prior to the initial corporate meeting. Because the Corporation is not set up yet, the pre-incorporation agreement will give authority to its incorporators.

Why a company is generally not liable under pre-incorporation 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.

What do you call a pre incorporation contract?

Pre-Incorporation Contract. The promoter is obligated to bring the company in the legal existence and to ensure its successful running,; and in order to accomplish his obligation he may enter into some contract on behalf of prospective company. These types of contract are called ‘Pre-incorporation Contract’.

What is a pre incorporation contract in Malaysia?

TABLE OF CONTENTS PAGE INTRODUCTION 1-2 CASES IN ENGLISH COMMON LAW 3-9 CASES IN MALAYSIAN COMPANY LAW 10-11 CONCLUSION 12 REFERENCES 13 fINTRODUCTION Pre-incorporation contract is the contract entered by the promoters on behalf of the company before it has been registered.

Who is liable for a breach of a 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. Whether Promoter Is Personally Liable For Pre-Incorporation Contract?

Why are incorporation contracts not binding on a company?

Incorporation contracts were not binding on the company at common law and they could not be ratified by the company even after incorporation. This is because before incorporation, the company is regarded as being inexistent, thereby lacked contractual capacity.

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