Pre Incorporation of

Contracts,Their legality in
india and England
TABLE OF CONTENTS

LIST OF TABLES

ABSTRACT

ACKNOWLEDGEMENTS

CHAPTERS:

1. INTRODUCTION

2. DEFINATION AND NATURE OF PRE-INCORPORATION OF

CONTRACT
2.1 LEGAL DEFINATION OF PRE-INCORPORATION OF CONTRACTS

2.2 NATURE OF PRE-INCORPORATION OF CONTRACT

2.3 EFFECTS OF PREINCOPORATION OF CONTRACTS

2.3 IS COMPANY BOUND BY PRE-INCOPORATION OF CONTRACT

3. DRAWBACKS AND BENEFITS OF PRE-INCORPORATION OF

CONTRACTS
2.3 DRAWBACKS OF PRE-INCORPORATION OF CONTRACT

2.4 BENEFITS OF PRE-INCORPORATION OF CONTRACT

4. PROMOTERS AND THEIR RIGHTS AND LIABILITIES IN PRO-

INCOPORATION OF CONTRACTS
2.5 WHO IS PROMOTERS..?
 2.6 WHETHER PROMOTERS ARE PERSONALLY LIABLE FOR PRE-

INCORPORATION OF CONTRACT.

2.7 HOW CAN PROMOTERS SHIFT HIS LIABILITY AND RIGHT TO

COMPANY.

5. RATIFICATION OF PRE-INCOPORATION OF CONTRACTS

5.1 CAN PRE-INCOPORATION OF CONTRACT RATIFY

6. LEGALITY OF PRE-INCOPORATION OF CONTRACTS IN INDIA AND

ENGLAND
2.8 LEGALITY OF PRE-INCORPORATION OF CONTRACT IN INDIA

2.9 LEGALITY OF PRE-INCORPORATION OF CONTRACT IN ENGLAND

3. CASE LAW
3.1 LANDMARK CASE

3.2 RECENT CASE LAWS

4. IMPORTANT PROVISIONS

5. BIBLIOGRAPHY
ACKNOWLEDGEMENT
No creation in this world is a solo effort.neither this desertation from the person who
gives me this topic for the pupose to enlarge my research skills and my knowledge to the
person who is taking this complete dissertation from me,everyone has a role,in a
particular,I would like to thank:

 My teachers,your endless support and continuance of teaching making me more

knowledgeable and efficient,your believe in me making me more confident,please
continue with your support

 God for his love and blessings

 My family who gave endless support and guidance for making this dissertation

 Umesh narain sharma an senior advocate in Allahabad high court,im very greatful
to mention you here to describe your support and guidance you have given to me
for this dissertation

 My friends from college

 Law makers from whom I m inspired and opted this law course

Thankyou for all your support and guidance this will definetly help me to build my future
1.INTRODUCTION
Before incorporation (that is registration with the companies and intellectual property
commission),A company does not exist and it cannot perforn juristic acts . in,adition no
ane can act as a companie’s agent because an agent cannot act for a non-existant
principle.however the legislature has foreseen that it may be necessary from a business
perspective foe a person to conclude a contract for a company that’s is not In existence
yet and has therefor included section 21 into the companies act 71 of 2008 which is the
enabling provision for the conclusion of pre-incoporation contracts

A pre-incoporation of contract os a contract that is entered into by a person who is acting

on behalf of a company that does not exist.the entering into the agreement has the
intension that once the company comes into existence the company is to be bound by the
provisions of the pre-incorporation contract

The only formal requirement for the conclusion of a pre-incorporation contract is that it
must be reduced to writing. The companies act provides that if the board of directors of
the company has neither ratified nor rejected a particular incorporation contract made or
done in the name of the company within three months after the date on which the
company was incorporated the company will be regarded as having ratified that
agreement in the event that the company is not incorporated or if incorporated but refuses
to adopt and ratify the agreement the agent in terms of the companies act is jointly and
saverally liable with any other person for the liabilities created as provided for in the pre
incorporation contract

Parties to a contract enter into an agreement with the intension that the end result
envisaged is the exchange something of value usually money, atleast in most instenses
.The same end result is worked towards in pre incorporation of contract however the
achievement of this result will not be possible if the contract does not make provision for
a special clause dealing with the pre incorporation aspect

There is no correct ways to phrase such a clause but to ensure that the contract will be
legally enforceable the construction of the clause is important

The following aspects should be addresses in the clause dealing with the the
incorporation of the company :

1. There must be a undertaking given by the agent action on behalf of the company
to be form that the company will be incorporated within specific time frame
2. An undertaking that the company will be bound by the contract once
incorporated
3. In the event of the company is incorporated but refuses to adopt and ratify the
agreement or rejects it conditionally ,partially or completely who is to be liable
 4. Who will be liable as purchaser if any of the above condition are not fulfilled

While the purpose of having such a clause in a contract is to protect the seller that
there is a legal subject t(i.e company or agent ) that will be had liable as purchaser
the true instruction of the companies act 71 2008 is to provide a legal basis that
are not yet incorporated to engage in business transaction before ,it is legally
inexistence.
The prime characteristic of the company structure is separate legal identities
which allow it to enter into contract with parties and own assests in its own
name.A company obtains the legal identity after its legal identity after its
incorporation and registration in india .however more often it is observed that the
promoters enter into contract with third parties even before pvt ltd company
registration in india whether for the registration purpose itself or otherwise .here
,we are discussing weather this contract made in name of promoters valid or not
these contracts are known as promoters contract or pre incorporation contract in
lagal terms

Pre-incorporation agreement
Pre incorporation agreement can be described as follow :
 An agreement between indivisual who contemplate the formation of a
corporation in the future .each indivisual designates the share volumes he
will take when the proposed corporation has been created
 An agreement between an indivisual and promoters of a corporation where
a promise is made by the indivisual to promoters stating the number and
class of share that the indivisual will take when the promoters create the
corporation this differ from a former case because the agreement is
between the promoter and the third party indivisual
 A transaction between an individual and an existing corporation where a
designated number and class of share are createdfor the individual this
ocuurs in case where the delivery of a share certificate is contingent on the
fulfillment of certain pre-agreed payment to be made to said individual
 A contract between an individual and a corporation whereby it is agreed
that a certain number and class of share will be created for the individual
in this case the contract may be between the corporation and an individual.
Defination and nature of pre-incorporation of contract
LEGAL DEFINATION OF PRE-INCOPORATION OF CONTRACTS