ExpertACCA · Question 53 · The formation and constitution of business organisations
Scenario: 'Urban Canopy Initiatives', a community group, wants to form a corporate entity to buy land for rooftop forests. They want limited liability to protect their members, but they do not want to issue shares, and any surplus income will be reinvested into the community rather than distributed as profit. Before incorporation, founder Elena signs a contract for a crane in the name of 'Urban Canopy Initiatives Ltd'.
Question: What is Elena's legal liability regarding the contract for the crane?
Scenario: 'Urban Canopy Initiatives', a community group, wants to form a corporate entity to buy land for rooftop forests. They want limited liability to protect their members, but they do not want to issue shares, and any surplus income will be reinvested into the community rather than distributed as profit. Before incorporation, founder Elena signs a contract for a crane in the name of 'Urban Canopy Initiatives Ltd'.
Question: What is Elena's legal liability regarding the contract for the crane?
Answer options:
She has no liability; the contract is void.
She is personally liable because the company did not exist when the contract was signed.
The company is automatically liable once it is incorporated.
The crane supplier bears the loss.
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