ExpertACCA · Question 53 · Syllabus D: The formation and constitution of business organisations
Scenario: EcoHabitat, a group of environmentalists, wants to form a corporate entity to buy land for conservation. They want limited liability but do not intend to distribute profits. They are considering a company limited by guarantee. During the pre-incorporation phase, one of the founders, Leo, signed a contract for office space in the name of 'EcoHabitat Ltd'.
Under section 51 of the Companies Act 2006, what is the legal consequence of Leo signing the contract before incorporation?
Scenario: EcoHabitat, a group of environmentalists, wants to form a corporate entity to buy land for conservation. They want limited liability but do not intend to distribute profits. They are considering a company limited by guarantee. During the pre-incorporation phase, one of the founders, Leo, signed a contract for office space in the name of 'EcoHabitat Ltd'.
Under section 51 of the Companies Act 2006, what is the legal consequence of Leo signing the contract before incorporation?
Answer options:
The contract is void and neither Leo nor the company is liable.
The company is automatically bound by the contract once incorporated.
Leo is personally liable on the contract, subject to any agreement to the contrary.
The landlord can only sue the company, not Leo.
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