Pre-Incorporation Contracts & Incorporation of a Company, IKHSAN…
Incorporation of a Company
Those who cause a company to be incorporated, who may later find persons to act as its director, arrange for its shares to be offered to the public or sells asset to it, and generally the promoter is involved in launching the company.
Twycross v Grant
Undertakes to form a company with a reference to a project and takes necessary steps to accomplish the project.
Tracey v Mandalay Pty Ltd
The idea of exertion for the purpose of getting up and starting a company and also the idea of some duties towards the company imposed by or arising from the position of the assumed promoter.
Duties of Promoters
Duty to disclose to the company any profit which he may secure
Independant board of directors
Existing or intended shareholders
Erlenger v New Sombrero Phosphate CO.
Facts: The App. & ors. formed a syndicate to acquire a lease of an island for the mining of phosphates. Members of the syndicate formed a company to purchase the lease. The company then sells its shares to the public. After 8 months, the public investors found out the fact that the syndicate had bought the island at half the price the company had paid for it. The company sued for rescission based on non-disclosure.
Held: The contract should be void because the prospectus that offered the company's shares to the public did not disclose the promoter's profit
Remedies for Breach
Where a promoter fails to make a full and proper disclosure of a profit made by him out of the promotion
Rescission of contract
Where promoter has sold his property to the company, without disclosing this. The company can rescind the contract and recover the purchase price.
Recovery of secret profit
It is not necessary that there need an imputation of evil purpose or conscious fraud.
Damages for breach of fiduciary duty
A company may have a remedy in damaes against its promoters for breach of their fiduciary duties.
Incorporation of a Company
On and from the date of incorporation specified in the certificate of corporation. The subscribers to memorandum together with such other persons as from time to time become members of the company shall be a body corporate by the name set out in the memorandum
The effects of section 16(5)
Shall be a body corporate forthwith of exercising all the functions of an incorporated body and of suing and being sued and having perpetual succession and a common seal with power to hold land but with such liabilty on the part of the members to contribute to the assets of the company in the events of its being wound up.
Effects of incorporation
Seperate legal entity
Salomon v Salomon
2.Can sue and be sued
Ability to own property
Macaura v Northern Assurance co
Limited liability on members
Powers of a company
A company acts through its agent
Foss v Harbottle
Lifting of the Corporate Veil
Pull aside the persona to look who is behid the abuse or injustice
S46 EPF Act
Sec108A Emp. Soc. Sec. Act
Contracts made before a company is incorporated.
A company has no contractual capacity prior to incorporation.
Before incorporation, a company is not a seperate entity and incapable of gaining contractual rights or incurring liabilities.
The promoters are responsible on behalf of the company before incorporation
Kelner v Baxter
Facts: The promoter in behalf of unformed company accepted an offer of Mr. Kelner to sell wine. Subsequently, the company failed to pay Mr Kelner so he brought the action against the promoters.
Held: The company cant take the liability of the pre-incorporation contract through adoption or ratification. Because a stranger cant ratify or adopt the contract and company was a stranger as wasnt in existence at the time of contract. The promoters are personally liable for the pre-incorporation contract because they are the consenting party to the contract.
Position in Malaysia
Any contract or other transaction purporting to be entered into a company prior to its formation or by any person on behalf of a company prior to its formation may be ratified by the company after its formation and thereupon the company shall become bound by and entitled to the benefit therof as if it had been in existence at the date of contract or other transaction and had been a party thereto
Prior to ratification by the company, the person or persons who supported to act in the name or an behalf of the company shall be in the absence of express agreement to the contrary be personally bound by the contract or other transaction and entitled to the benefit thereof.
The effect of section 35
To enable outsider to enforce the contract either against the company after it is incorporated when it ratifies the contract or against the persons who purported to execute the contract on behalf of the non-existent company if does not.
Procedure of incorporation of company
rexerved for 3 monts
availability and reserve name
mininimum num is 2
Subscribers to Memorandum
S14(1) requires 2 or more to subscribe their names in MoA
Full name, addresses and occupation of the subscribers.
Share capital company - shareholders must agree to take the numbers of shares in capital
State the number of shares (>1) in handwriting
Must sign the MoA in presence of >1 independant witness.
Subscribers must sign the AoA as procedures required in MoA
Subscribers as members
Deemed to have agreed to become members
In its register of members,
Even if the subscribers are not entered in the register of the members
Certificate of incorporation
Date of incorporation
Type of company set up
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