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
- 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