Practicing Success
Practicing Success
CUET Preparation Today
What are the preliminary contracts? |
Contracts signed by promoters with third parties before the incorporation of company Contracts signed after incorporation but before commencement of business Contracts signed after commencement of business Contracts signed after capital subscribed by public |
Contracts signed by promoters with third parties before the incorporation of company |
The correct answer is option 1- Contracts signed by promoters with third parties before the incorporation of company. Contracts signed by promoters with third parties before the incorporation of company are called Preliminary Contracts. During the promotion of the company, promoters enter into certain contracts with third parties on behalf of the company. These are called preliminary contracts or pre-incorporation contracts. These are not legally binding on the company. A company after coming into existence may, if it so chooses, decide to enter into fresh contracts with the same terms and conditions to honour the contracts made by the promoters. Note that it cannot ratify a preliminary contract. A company thus cannot be forced to honour a preliminary contract. Promoters, however, remain personally liable to third parties for these contracts. |
