ACCA F4 - Corp and Business Law (ENG)

198 13: Company formation  Part D The formation and constitution of business organisations

2.3 Liability of promoters for pre-incorporation contracts

A company's promoter is liable on all contracts to which they are deemed to be a party. This means they

may also be entitled to enforce such contracts against the other party and so they could transfer the right

to enforce the contract to the company.

2.4 Other ways of avoiding liability as a promoter for pre-incorporation

contracts

There are various other ways for promoters to avoid liability for a pre-incorporation contract.

(a) The contract remains as a draft (so not binding) until the company is formed. The promoters are

the directors, and the company has the power to enter the contract. Once the company is formed,

the directors take office and the company enters into the contract.

(b) If the contract has to be finalised before incorporation it should contain a clause that the personal

liability of promoters is to cease if the company, when formed, enters a new contract on identical

terms. This is known as novation.

(c) A common way to avoid the problem concerning pre-incorporation contracts is to buy a company

'off the shelf'. Even if a person contracts on behalf of the new company before it is bought the

company should be able to ratify the contract since it existed 'on the shelf' at the time the contract

was made.

You should consider the status of pre-incorporation contracts as a highly examinable topic.

3 Registration procedures

A company is formed and registered under the Companies Act 2006 when it is issued with a certificate of

incorporation by the Registrar, after submission to the Registrar of a number of documents and a fee.

Most companies are registered under the Companies Act 2006.

A company is formed under the Companies Act 2006 by one or more persons subscribing to a

memorandum of association who comply with the requirements regarding registration. A company may

not be formed for an unlawful purpose.

3.1 Documents to be delivered to the Registrar

To obtain registration of a company limited by shares, an application for registration, various

documents and a fee must be sent to the Registrar (usually electronically).

3.1.1 Application for registration

The Companies Act requires an application for registration to be made and submitted to the Registrar.

The application must contain:

 The company's proposed name

 The location of its registered office (England and Wales, Wales, Scotland or Northern Ireland)

 That the liability of members is to be limited by shares or guarantee

 Whether the company is to be private or public

 A statement of the intended address of the registered office

Exam focus

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