Pre incorporation contract problem

promoters contract

Equity Structure List the number of shares that the corporation is authorized to issue and the number of shares that will initially be issued to shareholders. The central theme of this study remains whether the new Companies Act provides adequate solutions to the problems that frequently arise from the conclusion of pre-incorporation contracts, and whether the shortcomings that exist in current and previous legislation have successfully been addressed by the new Act.

Purpose Many countries require a corporation to state its purpose quite specifically, and will not allow it to operate outside of that purpose.

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However, a pre-incorporation contract carries an additional layer of risk for the parties and should only be entered into following the receipt of experienced legal advice. The fact that neither party was aware the company was not yet incorporated meant they could not have had s.

It is crucial to obtain legal advice, which should include the solicitor checking to see if the company purporting to enter the agreement has in fact been incorporated. Judge Klein of the High Court took a restrictive approach to the interpretation of s.

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The South African courts have offered insight into the difficulties relating to the various statutory arrangements and explored alternative methods to supplement these statutory provisions.

Name each shareholder and list the number of shares held by each. Most states require the registered agent to reside in the state of incorporation. Don't state the corporate purpose narrowly unless you have solid business reasons for doing so, because a narrow statement of purpose, if reflected in the Articles of Incorporation, can unnecessarily limit the corporation's flexibility.

It reads as follows: 51 Pre-incorporation contracts, deeds, and obligations 1 A contract that purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly.

Effects of pre incorporation contract

This entails tracing the historical development of the common law rules relating to agency and ratification, and their impact on pre-incorporation contracts. The actual intention of the wording in question was more likely to prevent or restrict a third party from becoming a third-party purchaser by way of assignment or sub-sale in circumstances where the original contracting party was the company. For more information, please call our office on It is clear from the research presented in this study that pre-incorporation contracts have the potential to present a range of complex and challenging questions in practice. Equity Structure List the number of shares that the corporation is authorized to issue and the number of shares that will initially be issued to shareholders. This is known as a pre-incorporation contract. This study explores the impact and effect that the new Act will have on the conclusion of pre-incorporation contracts, and also identifies the possible shortcomings of the Act. The advantages, disadvantages and legal consequences of these alternative methods are also discussed and analysed in this study. Fair consideration will be given to case law on these aspects. The central theme of this study remains whether the new Companies Act provides adequate solutions to the problems that frequently arise from the conclusion of pre-incorporation contracts, and whether the shortcomings that exist in current and previous legislation have successfully been addressed by the new Act. Purpose Many countries require a corporation to state its purpose quite specifically, and will not allow it to operate outside of that purpose. Secondly this study attempts to determine whether the old and the current legislation regulating pre-incorporation contracts have been effective, and if so, to what extent. In the U. This study also reveals that these alternative methods present their own complications. Normally, the state of incorporation is the state where the corporation's principal place of business is located, although you may incorporate in another state and pay annual fees to do business in your home state.

The proposed reforms as introduced by section 21 are therefore welcomed. Concepts that are dealt with in this regard includes shelf companies, an agreement for the benefit of a third party the stipulatio alteriand where promoters act as principals.

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Should You Risk Signing A Pre