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Pre-Incorporation Contracts - Essay Example

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The pre-incorporation contracts are entered into on behalf of the company by the promoters of the company. Usually such contracts may include leasing or purchasing real estate property and equipment, hiring of executives, financial arrangements with third parties or agreements with prospective clients.
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Pre-Incorporation Contracts
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Pre-Incorporation Contracts

Download file to see previous pages... Section 32A (1) (a) of the Companies Ordinance of Hong Kong contains the statutory provisions governing the pre-incorporation contracts. According to this section where a person or a promoter who enters in to a contract on behalf of the company as agent before the incorporation of the company, then that person will become personally liable under the contract unless there is an agreement to the contrary entered into between the company and such person. However it is not possible that a contract between the company and the person can be entered into subsequent to the incorporation which makes the company liable on the contract. (IQS)
Normally a pre-incorporation contract is an incomplete contract. It is incomplete because it doesn't specify the obligations of the different parties under the contract in case it was not possible to form the company. Similarly it doesn't state the remedy for the other party in case the company after incorporation is not able to perform. Three different rules can be adopted to resolve the situation:
The Jiangsu Province Higher people's Court of China had promulgated certain decisions and passed on some opinions in the adjudication of certain types of company law cases that can be taken as guide lines for the determination of civil liabilities in the pre-incorporation contracts. According to the Higher People's Court, a 'company being incorporated' refers to an organization which is formed to carry out the acts necessary for the incorporation of the company. It can be assumed that its existence starts on the day on which the execution of the company constitution or incorporation agreement takes place and ends on the day on which the business certificate is issued to the company. In this context the 'necessary acts' implies the legal and economic acts done for the purposes of incorporating the company and complying with the requirements for the establishment of the company in the Company Law of the People's Republic of China.
The Higher People's court had expressed the following remarks on the adjudication of certain company cases:
Where a promoter does a necessary act for the incorporation of the company in the name of the company, the legal consequence of such an act shall be borne by the company.
Where a promoter does a civil act unnecessary for the incorporation of the company, in the name of the company, the creditor may hold the promoter responsible for the consequential civil liability. When the company after incorporation ratifies the act of ...Download file to see next pagesRead More
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