Page 177 - Microsoft Word - 00 Prelims.docx

Corpporationss and leggal persoonality

Pre-inccorporatioon contraccts

A prre-incorporration conttract is a coontract maade by a peerson actinng on
behalf of an unformed coompany. TThe position at commmon law is tthat a
commpany, prioor to its incoorporation, does not have conttractual capacity
and the promooter is therrefore perssonally liable. (This iss because a
commpany doess not legally exist unttil it is incoorporated.)

In summary, with a pre-incoorporation contract:

 Thhe companny cannot ratify the contract.

 Thhe companny is not bbound by tthe contracct.

 Thhe companny cannot enforce thhe contracct against aa third partyty.

S.51 CAA 2006 reiinforces the commonn law positiion by provviding that,, subject too any
agreemment to the contrary, the personn making thhe contract is personnally liable. Clear
and express wordds are needed in order to negaate liability: Phonograam Ltd v LLane
(1981)..

173