Section 1 of the Act defines an PIC as “a written agreement entered into prior to the creation of a corporation by a person who purports to act on behalf of or on behalf of the proposed corporation, with the intention or understanding that the proposed corporation will be formed and then bound by the agreement.” It also grants the power to register a PIC in accordance with § 21. Once established, the company must ratify the contract so that the conditions can be imposed on it. With the decision to ratify the PIC, the representative who initially concluded the contract for the benefit of the company is released from any liability. An essential aspect of the ICC under the law would be that the treaty would have to be ratified within three months of its admission. Ratification simply means that the company decides to formally approve the terms and obligations of the agreement. This can be complete, partial or conditional. As a result, the terms and obligations of the agreement would apply retroactively (as if the contract had been concluded by the company from the date of its signature). If no formal ratification or rejection takes place within the three-month period, the CIP shall be deemed to have been ratified. Therefore, it can be said that it is always preferable to conclude a written agreement between the parties before establishing a company in order to delimit the rights and responsibilities of each party and to have a compensation mechanism in case of violation of a pre-incorporation agreement. However, there are significant issues that plague pre-incorporation contracts, such as the spectre of fraud by contractors and developers, as well as the possibility that obligations will be ignored or cancelled retrospectively before incorporation. These questions raise some legal questions that include: Could the company ratify or accept a pre-incorporation contract in order to become responsible for it? If the company cannot do this, were those who acted for the company before it was created personally responsible for the contracts they entered into? In such situations, the parties turn to the laws and courts to determine the applicability of such a pre-incorporation agreement, the liability of the parties, if any, the remedies available to the parties and, finally, who bears the risk of loss. You may decide to integrate your company to take advantage of the different advantages of the company structure.

If so, consider creating a pre-incorporation contract to define roles, responsibilities, and liabilities in the period prior to incorporation. The legal status of pre-incorporation contracts is not easy to define. Under the Indian Contract Act of 1872 (the “Contracts Act”), all agreements are contracts when entered into with the free consent of the parties responsible for a legal consideration. However, during the pre-incorporation phase, the company on whose behalf the organizer concludes an agreement does not exist. Therefore, a company cannot enter into a contract before its existence. He can only sign an agreement after his name has been registered with the Registrar of Corporations under the Companies Act. In addition, the organisers act as `agents` of the company when concluding these contracts before incorporation. However, if the principal, i.e.

if the existence of the company itself is not a reality, how can the organizer designate himself as the representative of the company? Therefore, the organizers themselves are personally responsible for all agreements they enter into on behalf of the company, even if they claim to have concluded contracts in favor of the company. A pre-incorporation contract is a contract purportedly entered into by or on behalf of a corporation at a time when the corporation has not yet been formed. Since the company mentioned in the organizer`s contract has not yet been founded at the time of the conclusion of the contract, the company is not bound by the contract when it was created. However, acceptance of the contract is expected by the contracting parties. If the company actually accepts the contract, it assumes the rights and obligations set out in the contract. In accordance with section 15 (h) of the Specific Remedies Act, the specific performance of a contract may be performed by any party or agent in the interest of the principal if the promoters of a company have entered into a contract prior to the establishment of a business and such a contract is justified by the conditions of incorporation of the company. Similarly, under section 19 (e) of the Specific Remedies Act, if the newly incorporated corporation has accepted the pre-incorporation agreement and notified the other party of its acceptance, the discharge may be invoked against the parties under the following heading. Internal agreements: According to Odgers Law Group, a pre-incorporation agreement can be used to define the responsibilities of the founders with details such as the management of the company and the role of the chief financial officer. If individuals provide the company with personal resources such as a car, living space or current account, the agreement may determine the role of these resources and the terms of remuneration prior to incorporation. The choice to enter into a pre- or pre-incorporation agreement rests with the parties involved in the training and whether the promoters believe that they and the future company would benefit from it.

However, it is always a good idea to enter into a written agreement with the parties to clearly delineate the rights and obligations of each party. In addition, it helps resolve many disputes that could result in purely verbal or handshake agreements. At this time of the COVID-19 pandemic, while even the parties to written contracts are in place, an unwritten agreement prior to its creation would add to the confusion between the parties and to a dispute that could have been avoided if they had reached a written agreement. Pre-incorporation contracts perform a valuable function. By enabling valid and binding legal obligations to third parties, emerging companies are able to obtain important and sometimes essential services necessary to become a fully capitalized and stable company. Pre-incorporation agreements (or pre-incorporation contracts) determine operations and management and define who will have control before the first company meeting. In addition to the pre-incorporation agreement, many entrepreneurs draft a shareholders` agreement and a confidentiality agreement. This group of documents can help ensure that there are no surprises once the company is actually founded. Since the company has not yet been established, the prior incorporation agreement will give authority to its founders. Once the Company has been established, the Parties may at any time request the Company`s ratification of the Preliminary Agreement or request novation. Novation is defined as the conclusion of a new contract, by which the new obligations or contracting parties are replaced by the previous contract.

As part of the novation, the old contract (here the pre-foundation contract) and a new contract between the parties would be concluded. The principle of novation is also recognized under Article 62 of the Contracts Act. An ideal place of incorporation would be the state where the future company would conduct its activities with other companies. It is good to attach a draft of the statutes and statutes to the prior agreement to the foundation. For centuries, the binding authorities for treaties before their foundation were the common doctrines. The common law position on pre-incorporation contracts was based primarily on the principles of contract confidentiality and agency law. However, various jurisdictions have enacted their laws and promulgated legal principles that deal with pre-incorporation contracts through case law and statutes. For example, the State of Delaware deals with legal issues arising from pre-incorporation contracts through the jurisdiction. It is safe to say that there are no direct legal provisions in Delaware laws regarding pre-incorporation contracts. Under UK law, however, contracts appear to be largely regulated by law before constitution.

Business agreements: If you are involved in business transactions and contracts with other companies, a pre-incorporation contract can protect your business from incorporation. For example, a contract may stipulate that a company-type limited liability is in effect even before formal incorporation documents are issued. In addition, the pre-incorporation agreement may stipulate that the legal authority of the individual business owners is transferred to the real company once the incorporation is complete. If an Organizer enters into a contract on behalf of a company to be incorporated, the Promoter may be deemed personally liable for the performance of the Company`s obligations if, for any reason, the Company is not formed or does not accept the Contract. If the pre-incorporation contract is concluded, the company does not exist and therefore cannot be a contracting party. .