company law
B. Explain to Max, Belle and Kate the legal effect of common law and the Companies Act 1965 on pre-incorporation contracts.
Pre-corporation contract is one which is entered into when the Company is in the process of being incorporated but is not yet completed it. At common law such contracts were held to be void, as the company is not yet in existence. - Newborne v Sensolid Ltd.
In the common law effect, Pre-incorporation contracts cannot, in theory, be made by the company or by its promoter since the company or the principal does not exist before its incorporation. As such, at common law, a company is not bind by a contract made before its incorporation. Such contracts are invalid. In addition, the company also cannot approve and adopt the contract even after incorporation this is because invalid contracts cannot be approved. – Kelner v Baxter. Under section 35(1) of the Companies Act 1965 state that any contract entered into by a company before to its formation or by any person on behalf of the company prior to its formation MAY BE RATIFIED BY THE COMPANY AFTER ITS INCORPORATION. Chantique Berhad (CB) was a company incorporated. Max was asked by Belle and Kate to assist in the incorporation of the company whilst they provided all the finances. The certificate of incorporation was dated 15th December 2013. Prior to December 2013, Kate and Belle directed Max to purchase a warehouse for its business operations and storage. Under section 35(1) of the Companies Act 1965, this scenario is not be ratified. In the event that the company DOES NOT ratify the contract, under section 35(2) of the Companies Act 1965 state that the person who purported to act in the name or on behalf of the company shall be PERSONALLY BOUND by the contract. Thus promoters could be personally liable for per-incorporation contract. In this scenario, Kate, Max and Belle all are liable this is because three of them are promoters. The court held that the company was not liable but
Pre-corporation contract is one which is entered into when the Company is in the process of being incorporated but is not yet completed it. At common law such contracts were held to be void, as the company is not yet in existence. - Newborne v Sensolid Ltd.
In the common law effect, Pre-incorporation contracts cannot, in theory, be made by the company or by its promoter since the company or the principal does not exist before its incorporation. As such, at common law, a company is not bind by a contract made before its incorporation. Such contracts are invalid. In addition, the company also cannot approve and adopt the contract even after incorporation this is because invalid contracts cannot be approved. – Kelner v Baxter. Under section 35(1) of the Companies Act 1965 state that any contract entered into by a company before to its formation or by any person on behalf of the company prior to its formation MAY BE RATIFIED BY THE COMPANY AFTER ITS INCORPORATION. Chantique Berhad (CB) was a company incorporated. Max was asked by Belle and Kate to assist in the incorporation of the company whilst they provided all the finances. The certificate of incorporation was dated 15th December 2013. Prior to December 2013, Kate and Belle directed Max to purchase a warehouse for its business operations and storage. Under section 35(1) of the Companies Act 1965, this scenario is not be ratified. In the event that the company DOES NOT ratify the contract, under section 35(2) of the Companies Act 1965 state that the person who purported to act in the name or on behalf of the company shall be PERSONALLY BOUND by the contract. Thus promoters could be personally liable for per-incorporation contract. In this scenario, Kate, Max and Belle all are liable this is because three of them are promoters. The court held that the company was not liable but