Corporate Law

Corporate Law

Introduction

This paper intends to explore and understand the legal principles of pre registration contracts. In legal terms, pre registration contracts are defined as the types of such contracts that are entered in intentionally on the behalf of an organization, which is still un-registered.

This is seen from an agency point of view. However, a company could become liable for a pre-registration contract namely, where a substitution of contract occurs without ratifying the original contact. A company may bear some liability to an outsider even if it does not ratify a pre-registration contract - under section 131(3), if a person is sued for damages because the company is registered but does not ratify the pre-registration contract or enter into a substitute for it, the court may order to do one or more of the following;

pay all or part of the s 131(2) damages

transfer to the other contracting party property that the company received because of the contract

pay an amount to a party to the contract

In terms of a promoter common law, the liability of a promoter will be determined according to his intension to become personally liable.

Section 131(1) modifies the common law position and allows companies to ratify pre-registration contracts. This means the company becomes bound by the contract and entitled to the benefits. Section 131(2) has the effect of imposing liabilities on promoter for pre-registration contract where the company does not register does not ratify.

Discussion

In order for a contract to be enforceable by one of the parties against another party, several elements must be present. These elements consist of offer, acceptance, consideration and intention to create legal relations. Once formed, a contract reflects binding promises made on the part of the two parties. One of the parties may promise to perform a service or supply goods in return for the promise by the other party to provide some other consideration, which will often be monetary payment. If one of the promises is broken, the promised party may apply to the court either to enforce the contract or to claim damages for the breach of the promise. However, only legal persons may enter into a contract, as only such persons can form the requisite intention and make the promises. This has posed difficulties in relation to contracts entered into on behalf of companies prior to their incorporation.

Pre-registration Contracts and the Common Law

Prior to a company's formation, those intending to form the company may wish to make contracts relating to its affairs. These contracts are known as 'pre-incorporation' contracts. However, a company, prior to its formation, is not a legal person and therefore does not exist in law (Pennington, 2002) This means that the intended company cannot exercise any powers or functions, such as appointing agents or representatives to negotiate contracts on its behalf before it has been incorporated.

However, this does not prevent promoters of the company signing contracts with third parties. The common law attempted to distinguish between two possibilities in relation to these ...