Meaning
Agreements entered into by promoters or founders on behalf of a company that has not yet been legally formed. These pre-incorporation contracts allow a business to secure premises or intellectual property before the official filing. Until the company exists and adopts the agreements, the individuals who signed them remain personally liable.
This legal category manages the transition from a startup idea to a formal corporate entity.
Personal Liability
Founders often take on significant risk when they commit to leases or supply deals before the entity is registered. Because a non-existent company cannot be a party to a deed, the law treats the pre-incorporation contracts as the private obligations of the signers. This exposure continues even after the company is formed unless the contract is formally replaced.
Corporate Adoption
Ratification by the board of directors is the standard way for the new entity to take over the deal. Once the company adopts the pre-incorporation contracts, it assumes the rights and burdens as if it had been the original signer. This step is a priority in the first board meeting following the receipt of the certificate of incorporation.
Promoter Responsibility
Careful drafting is required to ensure that the individuals can walk away from the debt once the business is live. Many pre-incorporation contracts include a clause that automatically discharges the promoter upon the successful formation and adoption by the company. Without such a clause, the founder might find themselves as a guarantor for a company they no longer control.
This risk makes the formal novation of the early contracts an essential task for the incoming legal team.
