Question

Conclusion for pre incorporation and post incorporation

Answer 1

$\huge\red{Answer}$

The legal status of a pre-incorporation contract is not easy to define. Going by the definition of the contract, there have to be at least two parties/persons who enter into contract with each other. So, the general principle goes that no contract is there if one of the parties to the contract is not in existence at the time of entering into the contract. Hence, the company can’t enter into a contract before it comes into existence, and it comes into existence only after its registration. It may be argued that, the pre-incorporation contract is entered into by the promoters on behalf of the company. But here also, is a tangle. The promoters, while entering into the contract, act as agents of the company. But when the principal, i.e. the company is itself not in existence, how can it appoint an agent to act for it? So, the promoters, themselves and not the company, become personally liable for all contracts entered into by them even though they claim to be acting for the prospective company.

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