Essay about Pre Registration Contracts

1548 Words May 13th, 2002 7 Pages
The common law view of pre-registration contracts was that the company did not exist for legal purposes until it had been formally incorporated (registered). This common law view resulted in company's being unable to enter a binding contract until they had been registered. However "given the delays which can be encountered in the registration process, the promoter of a company may wish to enter into contracts `for' the company prior to its incorporation" . An example of this may be a promoter wanting to ensure a company will have stock on hand so it will be ready to operate when its registered. He might order stock and sign the contract in the unregistered company's name. Since a company did not exist before registration it could not …show more content…
This can be seen in s131(4) which states: ‘Where the company is registered and ratifies the pre-registration contract, but subsequently fails to perform all or part of its contractual obligations, the promoter may be held liable'. The court may take into account as to the extent to which the promoter controls the company when deciding whether to impose secondary liability on a promoter. The outcome of Tracy v Mandalay shows us that the courts are more reluctant to impose secondary liability in the case of a ‘passive' promoter who plays no active part in the formation or running of the company. Under the provisions of s131 the company is primarily liable once it ratifies the contract and the promoter retains a potential secondary liability. This is in order "to ensure that the other contracting party is not left without a remedy if the company fails to properly carry out the contract which it has ratified" Sections 131 and s132 have a major impact in respect to the rights and obligations of the promoters. The promoter has primary liability where the company is not registered within the stipulated time (time agreed upon by the parties) or when the company fails to ratify the contract within the stipulated time. Though section 132(1) says, the person who enters into a

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