Validity of Pre- Incorporation Contracts: Solving the riddle of a defectively incorporated contract

Author – Aysha Aazmy Moideen, Student at NUALS, Kochi

Best Citation – Aysha Aazmy Moideen, Validity of Pre- Incorporation Contracts: Solving the riddle of a defectively incorporated contract, ILE MULTIDISCIPLINARY JOURNAL, 1 (1) of 2023, Pg. 47-54, ISBN – 978-81-961097-5-2

Abstract

Pre-incorporation contracts refer to contracts signed by promoters of a company before its formal incorporation. These contracts pose a challenge because at the time of signing, the company does not yet exist as a legal entity that can ratify or reject the contracts. This paper examines the legal status and enforceability of pre-incorporation contracts. It reviews the common law doctrine of adoption and statutory provisions in various jurisdictions that allow companies to ratify pre-incorporation contracts after incorporation. However, ratification may not always be in the best interests of the company.

The paper explores various legal doctrines, including estoppel, agency, and restitution, that may render pre-incorporation contracts enforceable without ratification. It argues for giving companies flexibility in determining which pre-incorporation contracts they wish to adopt based on commercial reasonableness.

The paper concludes that courts should evaluate pre-incorporation contracts objectively based on the expectations of the parties and reasonable expectations of those dealing with the promoters. A balanced approach can protect companies from impermissible promoter conduct while encouraging commerce.

Keywords: E-Commerce, Consumer Protection, Contracts, Contemporary National Socio-Legal Issue, Digital Single Market