What is the effect of the pre-incorporation contract?


Effect of the Pre incorporation contract: The effect of the pre-incorporation contracts are as follows:-

  1. The company cannot be sued on the preliminary Contracts even though when it comes into existence and takes the benefit thereof. The company cannot be sued for those expenses, which are incurred before its incorporation because it was not in existence when the expenses were actually incurred.
  2. The company is also not a position to sue on the preliminary Contract.
  3. The person who acts for the intended company will be presently liable to the vendor, even if the company purports to ratify the agreement, unless the agreement provides that:
    1. His liability will come to an end it the company adopts the agreement.
    2. Either party may cancel the agreement if the company does not adopt it within a specified time.
  4. As per section 15 and 16 of the specific relief Act, 1963, a pre-incorporation contract can be enforced against the company, if it is warranted by the terms of incorporation and it is adopted by the company. In such a type of cases the director has no discretion in the matter.

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