ExpertMedium2 marksMultiple Choice
ACCA · Question 17 · Corporate and Business Law
A promoter signs a contract on behalf of a company that has not yet been incorporated. Under the Companies Act 2006, who is personally liable on this contract?
A promoter signs a contract on behalf of a company that has not yet been incorporated. Under the Companies Act 2006, who is personally liable on this contract?
Answer options:
A.
The company, once it is incorporated.
B.
The promoter is personally liable.
C.
The directors of the company, once appointed.
D.
The contract is void and no one is liable.
How to approach this question
Apply Section 51 of the Companies Act 2006 regarding pre-incorporation contracts.
Full Answer
B.The promoter is personally liable.✓ Correct
Under s.51 of the Companies Act 2006, a contract purported to be made by or on behalf of a company before it is formed has effect as a contract made with the person purporting to act for the company (the promoter), making them personally liable.
Common mistakes
Assuming the company can simply 'adopt' or ratify the contract after incorporation.
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