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

Lena signs a contract with a printer 'for and on behalf of Harbour Ltd', which is not yet incorporated. Under the rule in Kelner v Baxter, the promoter's personal liability arises mainly because:

Under Kelner v Baxter the promoter is personally liable because the company did not exist and could not be bound. Treating the promoter as the contracting party gives the agreement effect rather than leaving it without any liable party.

  1. Athe promoter is treated as a director of the company
  2. Bthe promoter is the only person available to be bound, so that the contract is not worthlessCorrect
  3. Cthe company is automatically bound once it is incorporated
  4. Dthe printer is an unsecured creditor of the company

Explanation

In Kelner v Baxter the court held that those who purported to act for a non-existent company were personally liable, so the contract would have effect. The company's later incorporation does not by itself bind it. Option C is wrong because there is no automatic transfer of liability.

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