Question

The promoters of the M/s ABC Ltd has
entered into the contract, before the
company was incorporated. Advise the
promoters the effects of pre incorporation
contracts
1. Binding on the promoters
2. Binding on the company
3. Does not bind on the company or
prospectus
4. binds on the company, if the matter
falls within the object clause​

Answer 1

Answer:

Is a company bound by a contract entered into by the promoters on its behalf before its incorporation?

While execution, the contracts are entered by the promoters on behalf of the company. Although, the promoters act as agent of the company to represent its interest, while registration, the principal is not in the existence. Therefore, the contracts entered by the promoters do not bind the company or the third party.