Question 1

**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:** Once the company is incorporated, which TWO of the following methods can be used to legally transfer the liability for the crane contract from Elena to the new company?

Accepted Answer

Recall that ratification is impossible for pre-incorporation contracts. The only ways are novation or a brand new contract.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Selecting 'Ratification'. While common in agency law, a company cannot ratify a pre-incorporation contract because the principal (the company) did not exist at the time the agent acted.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA LW — Corporate and Business Law Practice Exam 2

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