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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Dev signs a pre-incorporation contract in his own name for a company to be formed, Echo Ltd, and the contract states that Dev will have no personal liability. The supplier accepts this wording. Echo Ltd is later incorporated but never adopts the contract, and the supplier sues Dev. What is the most likely outcome?

Dev is not liable. The usual rule that a promoter is personally liable on a pre-incorporation contract can be excluded by agreement, and the supplier accepted a clause saying Dev would not be liable. Echo Ltd is not bound either, because it never made a new contract.

  1. ADev is liable, because promoters are always personally liable on such contracts
  2. BThe supplier can sue Echo Ltd, because it was later incorporated
  3. CDev is not liable, because the parties expressly excluded his personal liabilityCorrect

Explanation

The rule that a promoter is personally liable can be displaced by agreement. Here the supplier accepted a clause excluding Dev's liability, so he is not liable. The company is also not bound as it never made a new contract. The word 'always' makes the first option wrong.

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