We will be discussing promoters in detail and pre incorporation contracts along with its enforceability in light of important case laws and Pakistani legislations.
Table of Contents
1. PROMOTERS
2. EXPLANATION
3. PRE-INCORPORATION CONTRACTS
4. REMEDIES IN CASE OF BREACH
5. PAKISTANI LEGISLATION
5.1 THE COMPANIES ACT 2017
5.2 SPECIFIC RELIEF ACT 1877
6. PAKISTANI CASELAW
7. CONCLUSION
Objectives and Topics
This work aims to examine the legal significance of promoters in corporate formation and to analyze whether pre-incorporation contracts are enforceable under common law and Pakistani legislation, specifically considering the fiduciary duties owed by promoters.
- Definition and legal status of company promoters.
- Fiduciary duties and the liability of promoters for secret profits.
- Legal enforceability of pre-incorporation contracts prior to company formation.
- Relevant case law, including landmark English and Pakistani court decisions.
- Application of the Companies Act 2017 and Specific Relief Act 1877 in Pakistan.
Excerpt from the Book
PRE-INCORPORATION CONTRACTS
These are the contracts signed by promoter on behalf of company before incorporation of the company or commencement of company’s business. It is part of process of making a company that its promoter would contract with third party for the purpose of any lease land, equipment that once the company is formed it can begin with its business without any delay.
There is a general rule that the entity not in existence cannot be made party to a contract or the company having no legal existence cannot be a party to the contract.
According to common law, a corporate entity before formation/existence cannot attain the legal status hence doesn’t have the contractual rights and other liabilities attached to a well established and existing corporate entity. The legal status of pre- incorporation contracts is null and void until as for the establishment of legal status of any entity it is necessary that the entity has a valid existence. However, it is part of process of making a company that its promoter would contract with third party, considering it to be part of promotion there lies a liability that may fall on the promoter in case of any breach of fiduciary duty or fraud. The pre-incorporation contracts cannot oblige the company hence excluding the company from any future liability.
Summary of Chapters
PROMOTERS: Defines the role of a promoter as a person who initiates the formation of a company, manages its promotional work, and performs duties in good faith.
EXPLANATION: Details the fiduciary obligations of a promoter, emphasizing the necessity of disclosure regarding any conflicting interests or secret profits to prevent liability.
PRE-INCORPORATION CONTRACTS: Explains the general rule that a company cannot contract before existence and discusses the legal implications of agreements signed by promoters before incorporation.
REMEDIES IN CASE OF BREACH: Outlines legal remedies available to companies, such as rescission of contracts and recovery of secret profits, when promoters breach fiduciary duties.
PAKISTANI LEGISLATION: Examines specific provisions within the Companies Act 2017 and the Specific Relief Act 1877 that regulate promoter conduct and contract ratification.
PAKISTANI CASELAW: Reviews domestic court interpretations regarding promoter's fiduciary duties and their reliance on established precedents like the Erlanger case.
CONCLUSION: Summarizes the dual nature of the promoter’s role and highlights the inherent contradiction between practical business needs and the legal rule regarding non-existent entities.
Keywords
Promoters, Company, Pre-Incorporation, Contract, Enforceability, Fiduciary Duty, Incorporation, Companies Act 2017, Secret Profit, Ratification, Pakistani Law, Business Formation.
Frequently Asked Questions
What is the core focus of this work?
The work focuses on the legal role of company promoters and the enforceability of contracts entered into by them before a company is formally incorporated.
What are the primary subject areas covered?
The paper covers the definition of a promoter, their fiduciary duties, the legal status of pre-incorporation agreements, and relevant statutory provisions in Pakistan.
What is the main research objective?
The objective is to determine if pre-incorporation contracts are enforceable and how the law handles the liability of promoters who act for a company that does not yet exist.
Which methodology is employed in the study?
The study employs a legal research methodology, analyzing statutory provisions and historical case law to derive current legal standards.
What topics are discussed in the main body?
The main body treats the fiduciary obligations of promoters, the "null and void" nature of pre-incorporation contracts, remedies for breach, and specific Pakistani legislation.
By which keywords can this work be characterized?
Key terms include Promoters, Pre-Incorporation, Fiduciary Duty, Enforceability, and Corporate Law.
Why is a promoter not considered an agent of the company?
A promoter is not an agent because an agent requires an existing principal, and at the time of promotion, the company does not yet possess legal existence.
What does the case of Kelner vs Baxter imply for promoters?
The case implies that because a company does not exist during the pre-incorporation phase, agreements are generally inoperative regarding the company unless the promoter remains personally bound.
How does the Companies Act 2017 address promoter fraud?
The Act allows courts to examine promoters or directors publicly in cases of fraud or actionable irregularities identified during the winding-up phase of a company.
What is the significance of the Erlanger vs New Sombrero Phosphate Co. case?
It established that a promoter has a duty to disclose any conflicting interests and cannot retain secret profits, a principle that remains a cornerstone of promoter liability today.
- Quote paper
- Ayesha Masood (Author), 2019, The Significance of Promoters and Enforcability of Pre-Incorporation Contracts, Munich, GRIN Verlag, https://www.grin.com/document/1353837
