Chapter: 4.3 Pre-Incorporation or Preliminary Contracts of the Roles, Rights and Liabilities

Pre-Incorporation or Preliminary Contracts:

A Promoter of a company usually enters into contract to acquire some property or right for the company which is yet to be incorporated. Such contracts are called pre-incorporation or preliminary contracts.

Before incorporation, company is a non entity. Therefore, the Promoter cannot act as an agent for a company which has not come into existence. Therefore, the company is not liable for the act of the Promoter done before its incorporation.

Promoter and Pre-Incorporation Contracts:
i)    Company is not bound by pre-incorporation contract: - A company, when it comes into existence, is not bound by pre-incorporation contract.
ii)    Company cannot enforce pre-incorporation contract: - A company, cannot, after incorporation enforce the contract, made before its incorporation.
iii)    Promoter personally liable: - The Promoter remains personally liable on the contract made on behalf of the company not yet in existence. Such a contract is deemed to have been entered into personal capacity by the promoter and he is liable to pay damages for failure to perform the promises by in the company's name, even though the contract expressly provides that only the company shall be answerable for performance.