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Pre Registration Contracts Essay examples

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The common law view of pre-registration contracts was that the company did not exist for legal purposes until it had been formally incorporated (registered). This common law view resulted in company's being unable to enter a binding contract until they had been registered. However "given the delays which can be encountered in the registration process, the promoter of a company may wish to enter into contracts `for' the company prior to its incorporation" . An example of this may be a promoter wanting to ensure a company will have stock on hand so it will be ready to operate when its registered. He might order stock and sign the contract in the unregistered company's name. Since a company did not exist before registration it could not…show more content…
However, if registration does not occur or the company does not ratify the pre-registration contract , the person who entered the contract on behalf of the company becomes personally liable to pay damages to the other party" . Section 131 is only for contracts which are made before a company is registered. It does not apply where a company was registered at the time of a contract and changed its name. This is shown in case of Commonwealth Bank of Australia v Australian Solar Information Pty Ltd (1987) where it was made clear that a change of name is of no significance in determining the application of s81 to the material facts. Although this case was decided under the former s81, they would still seem to apply under s131. Another major impact of s131 is the changes to the common law rule that a company cannot ratify a pre-registration contract. This is a contrast to previous provisions as there is now no ratification procedures specified in s131 and therefore ratification can be made in any appropriate way. "Section 131(1) applies where a person enters into a contract ‘on behalf of' a company before it is registered. This covers situations where a person enters a contract as an agent or trustee of the company before it is registered. By using the expression ‘for the benefit of' s131 also applies where a person enters a pre
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