Who is the promoter in pre-incorporation contract?
Somebody has to set up the company and, in order to set up a company, there have to be promoters. The promoters will purchase property from which the company is going to operate and undertake the preliminary steps to set the company up.
Is promoter liable for pre-incorporation contract?
Promoters are generally held personally liable for pre-incorporation contract. If a company does not ratify or adopt a pre-incorporation contract under the Specific Relief Act, then the common law principle would be applicable and the promoter will be liable for breach of contract.
What is a pre registration contract?
Basically the common law discuss that the pre-registration contract is when a person makes a contract on behalf of the company yet to be registered. In the prospect that later will be registered [1] .
Can a promoter lawfully contracts with a company he has formed?
The promoters enter into preliminary contracts, generally as agents or trustees of the company. Such contracts are not legally binding on the company because two consenting parties are necessary to a contract whereas the company is nonentity before incorporation.
Who are promoters of a company?
A corporate promoter is a firm or person who does the preliminary work related to the formation of a company, including its promotion, incorporation, and flotation, and solicits people to invest money in the company, usually when it is being formed.
Can a promoter be a director of a company?
The term Promoter Director is not defined in the Companies Act nor does it find a place in SEBI’s definition. It is a very general concept based on the concept of Promoter. It basically means in its very common and general parlance, a Promoter who also acts as a Director of the company.
Why is a company not liable under a pre-incorporation contract?
Answer to all those question would be simple. The company does not in legal existence at time of pre-incorporation contract. If someone is not in legal existence, then he cannot be a party to contract, and ‘Privity to Contract’ doctrine excludes company from the liability.
What is the effect of a pre incorporated contract on the company?
Before a company is incorporated, it has no legal existence. Accordingly, it has no capacity to enter into a contract. The company cannot sue or be sued on a pre-incorporation contract. However, persons who conclude contracts for the unborn company can be held personally liable on such contracts.
Can a company enter into contracts pre-incorporation?
Before a company is incorporated, it cannot enter into commercial contracts. A contract entered into by a party on behalf of a company, where that company has not yet been formed, is called a pre-incorporation contract.
How can a company ratify a pre-incorporation contract?
(1) If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract: …
Can a company run without a promoter?
SEBI regulations allow companies to have zero promoter holding according. The SEBI regulations require a minimum 25 per cent of public shareholding but there is no legal requirement of minimum promoter group holding.
Are promoters owners of the company?
They invest in the company and are technically its owners. A promoter may also become the shareholders if they retain any share in the company which was initially subscribed by them through the Memorandum of Association (hereinafter referred to as ‘MOA’) of the company.
What is a pre-registration contract?
Basically the common law discuss that the pre-registration contract is when a person makes a contract on behalf of the company yet to be registered.
Is a promoter personally liable for pre-incorporation contract?
Although under common law promoter is personally liable for the pre-incorporation contract, but there are some scope where the promoter can sift his liability to company. He can shift to company his liability under the Specific Relief Act 1963 or he can go for novation under contract law.
What happens if a company does not have a pre-incorporation contract?
If a company does not ratify or adopt a pre-incorporation contract under the Specific Relief Act, then the common law principle would be applicable and the promoter will be liable for breach of contract. Whether Promoter is personally Liable for Pre-incorporation Contract?
What is a promoter under the Companies Act?
Section 67 of the Companies Act 1985 formerly defined a promoter in s 67 (3) as a person who is ‘a party to the preparation of the prospectus or a portion of it’. In the absence of any precise definition in statute, resort must be had to judicial statements relating to promotion.