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COMPANY LAW - SIGNING UP AS A COMPANY PRIOR TO INCORPORATION

On occasion, people sign documents in the name of or on behalf of a company that does not exist, but with the intent to form that company in the very near future. Do you think this plausible? The answer is yes. Are you thinking of signing a contract in the name of or on behalf of a company before it is incorporated? If so, there are a few steps you must follow under the Companies Act 1993 to ensure the pre-incorporation contract is validly entered, and to protect yourself from liability to the other contracting party.

First, you need to incorporate the company. After the incorporation of the company, it needs to ratify (i.e. adopt) the pre-incorporation contract.  This will make the contract valid and enforceable and make the company a party to the contract. The ratification process must happen within the period specified in the contract, or if no period is specified, then within a reasonable time after the incorporation of the company.

If a pre-incorporation contract has not been ratified, the company may not enforce it or take the benefit from it.  The person who signed the contract may be liable.

It is also important to bear in mind that there is an implied warranty by you on behalf of the company to be incorporated that:

  • The company will be incorporated within the timeframe specified in the contract or if no period is specified, within a reasonable period after the contract is made:
  • The company will ratify the contract within the timeframe specified in the contract or if no period is specified, within a reasonable period after corporation of the company.

If you enter into a pre-incorporation contract and breach the implied warranty, you will be liable for damages on the same basis as if you had entered into the contract on your own right and failed to perform the obligations of the contract. In some circumstances the person who actually enters into the contract can still be liable even if the company has ratified it, if the Court decides he or she should be liable. We recommend consulting a lawyer if you intend to enter a pre-incorporation contract.

For further information about pre-incorporation contracts or commercial law contact James Moran.

Written by James Moran at 00:00

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