Liability of Promoters During Pre-Incorporation Contracts

Company limited by guarantee are organisations which are registered with a company house and are found more within organisations that are of a larger size and have their own buildings, employ their own staff and have significant contracts or other responsibilities. These companies have a legal right of their own, which means that any agreements or contracts made with that certain company are held within the name of the company, however this limits financial liability.

This essay will explain the concepts of separate personality and limited liability and their significance in company law. The principle of separate personality is defined in the Companies Act 2006(CA) ; “subscribers to the memorandum, together with such other persons as may from time to time become members of the company are a body corporate by the name contained in memorandum.” This essentially means that a company is a separate legal personality to its members and therefore can itself be sued and enter into contracts. This theory was birthed into company law through the case of Salomon v Salomon and Co LTD 1872. This case involved a company entering liquidation and the unsecured creditors not being able to claim assets to compensate them. The issue in this case was whether Mr Salomon owed the money or the company did. In the end, the House of Lords held that the company was not an agent of Mr Salomon and so the debts were that of the company thus creating the “corporate Veil” .

Promoters are liable on contracts that are entered on behalf of a corporation that is not yet formed

Woodward, S., Bird, H. & Sievers, S. (2005). Corporations Law in Principle 7th ed. Pyrmont, NSW: Lawbook Co.

X is the promoter of X Pty Ltd, a company to which X proposes to sell some land for

Before the contract is entered into, the business must make the other party aware of the terms that it is setting out – therefore they can see what they are entering into and decide what is right for their business, to

According to the textbook, “An agent who makes a contract for a nonexistent principal is personally liable for it”. In our case, Koji is going to be personally liable for the contract due to the fact that he is the promoter and incorporation hasn’t performed yet. Although Main Street Sushi comes into existence, Koji will be released from the liability, if the corporation, the promoter, and the Lindenwood Realty all agree that the Main Street Sushi substituted for the promoter because Lindenwood Realty contracted directly with the Koji.

Liuzzo, A. L. (2016). Essentials of Business Law (9th ed.). New York, NY: MC Graw Hill Edu.

The running and operation of businesses poses the risks of loss and liability in the case of tort negligence or breach of contract. However, the business legal structure of a given organization greatly determines the risk of exposure to personal liability (Bevans, 2006). The paper investigates and compares the risk of exposure to personal liability in five business entities and explores how the risk can be mitigated. Business personal liability risk is classified as limited and unlimited. In unlimited liability, the personal assets in addition to business assets can be seized (Hillman & Loewenstein, 2015). Limited liability as seen in limited partnerships, corporations and limited liability companies significantly reduce the risk of exposure to personal liability. Opening a limited partnership in addition to taking insurance to protect the business offers the best chance of averting the risk for personal liability risk (Schich, 2009).

The choice of legal status for setting up a new company can be complex and is dependant on various tax, commercial and legal considerations (Accountingweb, 2014).

Corporate personhood is one of the issue in the United States of America since the mid-19th century. In a corporation, people get together and form a group. Corporation also a forms of artificial persons such as the governments and other political parties who involved in the modern corporation.

There are various kinds of contracts which arise within the business world today; contracts are an essential component to a business’s livelihood. Although a contract is an agreement, not all agreements are valid contractual obligations. In order for any contract to be an official and legally binding agreement, there are essential requirements which must first be fulfilled. Because contracts are vital to the organization and its success, it is important that the organization has an inclusive understanding of the inner workings of business

A Corporation can be defined as a legal creation, however the corporation itself, would only exist on a piece of paper. A corporation will never die a natural death like humans die naturally, and corporations will always outlive the individual who created it. With that said, the corporation itself is never really committed to any employee or committed to any neighbor. However, a corporation can always demand employees, a corporation can always demand taxes that are extremely high, and a corporation can also restrict environmental laws. Corporations hold a great deal of power in today's society.

In order for a contract to be formed, there are various requirements. These are offer, acceptance, consideration, and the intention to create legal relations. A contract may also be terminated.

When a company is incorporated it is treated as a separate legal entity distinct from its promoters, directors, members, and employees, which confers the benefit of not being responsible for the companies debt on the members on the company. However even though a company is a separate legal entity and it attains the advantage of not laying the responsibility of company’s debt on the