This Article is written By Vanshita. J. Khatwani of 5th Semester of LLB of I.M Nanavati Law College Ahmedabad, an intern under Legal Vidhiya
ABSTRACT
When a Corporation/Company is Establishing Business, They Have to Deal With Several Expenses And Contracts. The Person Who is Entitled to Manage These Responsibilities is Known As “The Promoter”. The Promoter Looks After The Main Four P’s of The Business :Product, Price, Promotion & Place as Well as The Duties And Rights of The Corporation/Company
Contracts That are Made by The Promoter With Another Entity on Behalf of the Corporation/Company Before It Is Formulated Are Called “Pre-Incorporation Contracts” Or “Promoter’s Agreements. Promoter is the Right Hand If The Company. It Has To Manage Both Legal as Well as Management of The Company. How, When And Where The Things Are Working On Behalf Of That The Other Party Decides To Join The Contract. The Another Party Pays Attention That How Well The Promoter Is Taking Care Of The Company. If He Can Be The Future Face Of The Company.
KEYWORDS: PROMOTER, RIGHTS, PRE-INCORPORATION CONTRACT, & RESPONSIBILITIES, COMPANY
INTRODUCTION
Pre-Corporation Contracts Are Essential For The Corporation/Company Before It Is Formulated Because They Form The Duties And Rights Which Helps In Securing Company For Future Difficulties & Troubles. Also, Known As Agreements It Maintains The Trust Between The Two Entities And No Seed Of Confusion Can Be Created. The Person Who Is Mentally Stable Can Only Enter Pre-Incorporation Contracts.
HOW PRE-INCORPORATION CONTRACTS WORK?
There Are Five Steps That Describe Step By Step Recognition Of Pre-Incorporation Contracts.
1.Planning Of The Pre-Incorporation Contracts:
When a Person Decides To Form A Company The First Basic Thing Is To Do Is Planning. Planning How Much Time & Remuneration You Are Committed To Offer. To Consider The Person Who Will Be Willing To Join You As A Partner In The Corporation/Company Also Can Manage And Take Same Responsibility Like You. Running Corporation Is A Big Deal You Have To Look After Employees, Managers, Board Of Director Etc. Before A Company Is Ready To Come In The Market Certain Individual Or Parties Want To Establish The Company On It’s Behalf Are Known As “Promoters”. These Promoters Take Responsibility For The Rights And Conditions Of The Company/Corporation. Therefore, The Important Step Is To Properly Plan The Outlines And Rules Of The Company/Corporation.
2. Organisation Of Pre-Incorporation Contracts:
After Planning, The Second Step Is To Take Care Of The Organisation. While Organising It Involves That Both The Parties Will Be Equally Liable For The Loss, Any Legal Disputes And Misconduct That Happened In The Business. Organisation Means Step By Step Arranging Each And Every Employees, Managers And Workers To Achieve The Common Goal Of Taking The Corporation Forward. A Peaceful Atmosphere Always Leads To Better Environment And Situation.
On The Other Hand, It Is Not Easy To Manage A Huge Organisation Without Any Proper Management. So, Organisation Should Be Properly Incorporated. Pre-Incorporation Contracts Are Organised Such As First They Are Formulated, Then The Superior Heads Goes Through The Contracts, Some Of The Promoters Use Incorporation Contracts For Their Selfish Intentions.
3.Authority Of Pre-Incorporation Contracts:
The Authority Can Be Considered As A Legal Issue. The Authority Can Be Given On The Basis Of Internal Factors Or External Factors.
Internal Factors: Agreements, Determination Etc. While External Factors Like Action, Or Any Kind Of Behaviour Done For The Future Corporation Can Be Considered Liable. It Can Be That Future Incorporation Has Specific Situation Where The Authority For The Future Incorporation Can Be Different. But In Most Of The Case The Authority Remains Same. The Authority Of The Incorporation Contracts Is A Careful Consideration Will Allows The Promoters To Take Major Steps For The Development Of Future Corporation. Whatever Cautious And Beneficial Measures Are Taken Also Are Helpful For The Future Development. It Is Also Important To Say That There Are Certain Drawbacks To Authority Of Incorporation Contracts Such As The Promoter Will Be Held Responsible For Any Disturbance Or Error In The Contract. As The Company Is Not Established No Legal Procedures Can Take Place. It Will Not Be Included Into A Fully Legal Issue.
4.Components Of Pre-Incorporation Contracts:
- The Name
Name Of The Person On Whom The Business Will Be Carried And All The Loans And Regulations Will Be Carried. His Name Will Be Registered. The Name Is As Important As The Other Documents Details.
- Licenses
License Is Required Compulsory To Run Any Corporation ,Firm Or Organisation. Follow The Procedure Of Acquisition Of License And Then Obtain License Before Incorporation.
- Cut-Off Time
There Is Fixed Date When The Corporation Formulation Should Be Completed According To The Guidelines. There Is Always A Deadline Set For The Completion Of The Work And It Should Be Done On Time So That There Will Be No Problem With The Documents And Services Given
- Company Area
The Area Where Office/Company Is Situated Should Be Mentioned Clearly So That For Future Records & Communication And For The Legal Papers That Should Be Kept With Care. The Area Should Be Written Very Nicely With Each Detail So That It Will Be Registrated In The Books And Will Be Written In The Articles And The Work Done.
- Appointed Officer
Any Officer Or Inspector Whoever Has To Be Appointed As The Part Of The Corporation Their Personal Details Should Be Available In The Register. His Also With Skills Has Experience That Will Be Helpful So That If Any Trouble Rises, They Can Solve It With Their Efforts.
- Investor
How Much Funding Can Be Given By The Investor And How Long Period Of Time. An Investor In A Company Is Like The Upper Part Of The Corporation He Will Be Made Aware Of All The Details, Meetings And Changes That Are Taking Place In The Corporation. The Corporation Is A Place Where Each And Every Part After Corporation Is Important. Every Step Have To Be Taken Care Of.
- Compensation
Compensation To All Employees , Accountants,& Shareholders For Managing All The Incorporation And Corporation Matters.
Bonus Should Also Be Paid For Working Hard And Achieving The Targets On Time Which Help The Company To Acquire Their Goals.
- Confidential Information
Confidential Information Is Carried Out With Security And Protection For The Corporation Or Company. Confidential Information Can Also Be Documents And Written Agreements. Clients. Bank Details And Personal Transactions.
5.Responsibility Of Pre-Incorporation Contracts
Whenever A Company Is Going To Be Formed The promoter Who Is Handling All The Rules And Conditions Is Liable For It. If Anything Happens To The Corporation Then He Will Pay For The Problem. But Once The Company Is Formed, The Responsibility Is Given To The Corporation For Whatever Liability Or Any Difficulties. The Responsibility For Any Kind Of Nuisance Is Carried According To Circumstances. Company Usually Takes No Responsibility The Promoter Is The Only Who Takes Care Of All Documents And Papers That Are Made To Sigh By The Company. The Conditions Is Always That a Company Cannot Risk It’s Independence Only If It Registrated Company Or The Plaintiff Done Any Kind Of Fraud Or Misconduct In His Past Life. He Should Be Of Sound Mind And A No Criminal Background. If These Conditions Are Satisfied Then Only The Person Has A Chance In The Court Of Law. But It Was Coitized And Court Hearing Were Held. Promoters Can Go Against Any Blame Made Against Them If They Have Any Kind Of Strong Proof. They Can Cancel Contract And Ask For Money Or They Can They Can Get The Same Profit Percentage As The Corporation. Same Goes For The Corporation If Promoter Commits Any Breach Of Contract, Then He Is Liable For Losses. The Circumstances Can Be Favourable For Both The Parties If They Have To Sought Out Things Calmly Without Any Law Interferences. The Main Responsibility Is To Provide Satisfaction To The Mind Of Promoter And Corporation And To Build Mental Peace Between Working Hours So That The Clients Feel Motivated.
CASE LAWS
- Weaver mills ltd V balkies Ammal
Madras Court Has Given It’s Judgement Which Has Made A Wide Exposure On Pre-Incorporation Contracts. A Motor Company Has Decided To Buy A Property On Behalf Of Company Before The Incorporation They Started Working On The Motor But They Didn’t Transfer The Title Of The Property In The Name Of The Company. The Case Was Taken Into The Court. The Court Said Even If There Is No Transfer Of Property In The Name Of The Company. The Title Of The Company Over Any Property The Title Should Not Kept Aside Anywhere. It The Duty Of The Company To Take Cake Of These Things If Have Done Any Kind Of Changes In The Title. All The Things That Are Brought In Favour Of The Company Should Be Given Same Important As The Company And The Promoter Work.
- Phonogram ltd.V. Lane
A Group Of Artists Took A Loan From A Recording Company To Incorporate And Establish Their Company. Due To Their Personal Reason The Company Was Never Established And The Loan Was Due On Them. The Recording Company Filed A Suit Claiming The Loan Money They Have Given To The Artists. The Court Held That Company Was Incorporated On The Time Of Contract That’s Why Promoters Are Liable For The Money. Without Any Money The Artists Will Pay In Half Amount. But They Have To Pay It Without Fail. Because It’s Their Duty To Return Money That They Took From Another Party. They Cannot Leave And Move Forward With Someone Else’s Money They Need To Fulfil This Contract Conditions. Otherwise, They Will End Up Getting Imprisonment Or Any Harsh Punishment.
- Kelner.V.Baxter
The Case Tells Us About The Promoters Of The Hotel Company Who Entered Into A Pre-Incorporated Contract For Wine Purchase. In This Case, When Wine Was Consumed Prior Due To Some Reason The Company Went Clearance. Another Party In The Contract Filed A Suit For The Non Payment Of Wine. Promoters Claimed As This Was Pre-Incorporation Contract Responsibilities Were Transferred The Company And So They’re Not Liable For It. In This Matter The Court Said The Company Was Pre-Incorporated And Hence The Promoters Are Liable For Paying The Amount To The Other Party. They Are Responsible Enough To Pay The Remuneration To The Party Because It Is Their Duty To Pay Back The Amount That Has Been Taken. They Should Take The Responsibility Will Making The Contract. Is It Important To Stay Loyal To The Commitments Made In The Contract. Hence, Promoter Is One If The Main Person Of The Company.
- Valla pattabhirama Rao .V. Shri Ramanuja Ginning
This Case Focuses On The Promoter Who Has The Right To Sue The Company Under Articles Of Association According To The Court. The Court Said The Promoter Have The Same Right As The Company It Can Claim For Losses And Justice. The Promoter Has An Important Function The Field Of The Corporation. He Single Handly Manages And Takes Care Of All The Useful Things In The Company. This Case Is Considered As One Of The Example For The Promoters. Promoters Should Also Follow The Rules And Regulations Firmly With Equality.
CONCLUSION
Pre-Incorporation Contracts Can Be Considered That They Have Not Much Value Of Their Open But Once They Are Enforceable, They Are Legally Important For Commencing Business. In Today’s Era Where Everybody Wants To Start Their Own Startup Or Business, They First Need To Take Care Of The Incorporated Contracts That Are Made For The Company. They Play An Important Role For The Establishment Of The Company. If The Promoters Think That The Future Corporation Will Be Liable On The Bases Of Internal And External Factors That The Promoter Can Take Legal Steps For The Betterment Of The Company. The Choice Is His What He Wants To Do. The Perfect Advice Is To Make Legally Agreement Between Entities So That The Responsibility And Rights Are Equally Divided.
Written Agreements & Contracts Makes The Work Easy Because All The Proof And Details Are Written In A Document. So, It Can Be Used In Future If Any Problem Arises. These Problems May Create Misunderstanding Or Trust Issues That’s Why Agreements And Contracts Are The Best. To Reduce Any Risk Or Challenges The Contracts Should Be Handled Legally With Full Responsibility. A Guidance Should Be Provided Regarding Contract Reviewing And Procedure Should Be Developed Well So There Is No Breach Of Contract. A Contract Is An Important Aspect Of The Company It Can Be Developed When There Is Trust And Deal Between Two Parties. No Parties Without Deal Are Allowed In The Contract. Genuinely And Hardworking People Are Accepted In The Company. The Company Is Like A Family To The People Working In The Company. It Should Be Carried Out Will Full Dignity And Practices. No Number Of Difficulties Arise If Legal And Useful Advices Are Followed With Utter Carefulness With Responsibility.
REFERENCES
1.[1]https://www.legalserviceindia.com/legal/article-9585-pre-incorporation-contracts.html
2.[2]https://indianlawportal.co.in/pre-incorporation-contracts/amp/
3.[3]https://enterslice.com/learning/sample-format-pre-incorporation-agreement/
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