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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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
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(Pre-Incorporation Contracts Essay Example | Topics and Well Written Essays - 2250 Words)
“Pre-Incorporation Contracts Essay Example | Topics and Well Written Essays - 2250 Words”, n.d. https://studentshare.org/miscellaneous/1526474-pre-incorporation-contracts.
The promoter is assumed to have executed without utmost good faith. This means that disclosure of their activities is the most important issue and they must work within the objectives of the promoters and must use their skills knowledge for the best of the firm. A promoter is any person involved in the planning to incorporate.
Usually such contracts may be vital for the formation of the company may have to be eventually accepted as they form a responsibility of the company. An example is for building a minimal set of infrastructure and other resources for the company including offices, contracts need to be organised with the third parties by the promoters.
As such, Sam stands in a fiduciary capacity to the shareholders of the company. Twycross establishes that promoters are individual to take the initiative to set up the company, arranges the finances and is responsible for the registration and formation of the company.
Section 51,2 defines it as a contract that purports to be made on behalf of or by a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made by the person acting for the company or as agent for it, and he is personally liable on the contract accordingly.
A promoter is a person responsible for forming a company whether or not a person is a promoter is a question of fact to be determined according to the role he played in the creation of the company. The steps as a whole involve-
The term promoter is not defined in the Companies Act and the judges have shown little inclination towards formulating an all-embracing definition.
The term promoter is not defined in the Companies Act and the judges have shown little inclination towards formulating an all-embracing definition. However, in Twycross v Grants1, Cockburn CJ went so far to state that a promoter is one who undertakes to form a company with reference to a given project, and to set it going, and who takes the necessary steps to accomplish their purpose2.
The general provision is that the company is not liable on such pre-incorporation contracts entered in to on behalf of the company prior to its formation. But the promoter may nevertheless incur a personal liability both under common law and statute. The established principle in the case of Kelner v Baxter (1866)1 states that the promoter who signed a contract on behalf of a company which had not at that time been incorporated was liable on the contract.
provisions of English contract laws are interpreted to the favour of rich individuals and big companies and also stress the need to revamp the century-old contract laws.
The English contract law remains unfair and this can be demonstrated in the case of pre-incorporation
The purpose of this paper is to examine the liability of company promoters and their contracts with third parties in relation to the Common Law and the Companies Act, 2006.
The lessons of Salomon V Salomon1 indicate that a
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