What do you understand by preliminary contracts? Discuss (a) the posit

Question

What do you understand by preliminary contracts? Discuss (a) the position (10) of the company in relation to the preliminary contracts, and (b) the liability of the promoter for preliminary contracts

21 Dec 2024

Answer :

Word Count : 706

Preliminary contracts refer to agreements entered into by promoters before the incorporation of a company. These contracts are made to facilitate the formation and establishment of a company and are typically agreements related to matters like the acquisition of property, securing capital, or other preliminary business activities necessary for the company’s operations once it is formed. These contracts, however, are not binding on the company until the company is legally incorporated, as the company is a separate legal entity and only becomes bound by contracts once it exists as a legal person.

(a) The Position of the Company in Relation to Preliminary Contracts

The company’s position in relation to preliminary contracts is one where it is generally not liable for the contracts entered into by the promoters prior to its incorporation. This is because, at the time the preliminary contracts are _________ _____ _________ ______ _________ _______.
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