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Company Promoter - Essay Example

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Company Promoter

1) On 15th August, Bill signed a letter that stated, "For and on behalf of Cornhill Ltd, as agent only, Bill". He agreed to purchase computer equipment costing 30,000 pounds together with a servicing agreement for five years costing 120 pounds per month. Logitech was charging an exorbitant rate for the servicing agreement; hence they wished to terminate the contract. Owing to Salomon3 principle, a company is a separate legal entity different from its members and it can therefore sue and be sued in its own name. According to Salomon principle, Cornhill Ltd can claim can claim for wrong done against it.
But here the company was not registered. A company does not come into existence until the promoter has completed the registration Requirements and the Registrar of the Companies issues a certificate of incorporation Prior to this time a company cannot bind by contracts entered into in its name or on its behalf. In practice, however, promoters will need to contract with the third parties for such things as a lease of premises, business equipments and connection to utilities so that once the certificate of incorporation is issued the company can begin trading4.
The problem that arises in the relation to incorporation contracts is whether Bills can avoid being personally l...
9(2) of the European Communities Act 1972, now found in s.36C of the CA 1985.

If somebody does not exist they cannot contract [Rover International Ltd v Cannon Film Sales Ltd (No 3)]5. So if this principle applied Cornhill Ltd can deny to follow the contract with Logitech because impose high price. Further, since at the time of a pre incorporation contracts the company does not exist, upon its subsequent creation it is necessarily a stranger to it and the doctrine of privity will operate to prevent rights and the liabilities being conferred to imposed on the company. The Contracts (Rights of third Parties) Act 1999, which allows enforcement of contracts by third parties if the contract expressly so provides or a term of the contract confers a benefit on the third party, does not apply to pre incorporation contracts. The Act is based on the recommendations of the Law Commission on its report, Privity of Contract: Contracts for the benefit of the Third Parties (Law Commission report No. 242, Cm 3329 (London, HMSO (1996)). Addressing the issue of pre incorporation contracts, the Law Commission drew the distinction between a contract on behalf of the third party and a contract for the benefit of a third party. The Law Commission stated that the former category involves the third party company becoming a party to the contract, and subject to all its rights and obligations, after its incorporation.

In Kelner v Baxter6 promoters of a hotel company entered into a contract on its behalf for the purchase of wine the company, when incorporated, ratified. The wine was consumed but before payment was made the company went to liquidation.7 The promoters, as agents, were sued on the ...Show more


In order to answer this question it is necessary to discuss the term of promoter, pre incorporation contract and s.36 of Companies Act 1985. Although the Companies Act 1985 does not define the term promoter, the judges have framed tests for determining whether a person's activities relate to the promotion of a company…
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