Skip to content

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

Marco, a promoter, signed a contract with a printer for stationery 'on behalf of Zenith Ltd', which was not yet incorporated. Zenith Ltd was incorporated a month later and has used the stationery. The printer is unpaid. Applying the general rule in most common-law based jurisdictions, who can the printer sue?

The printer can sue Marco personally. A company that did not exist when the contract was made cannot be bound by it or ratify it afterwards, so the promoter who signed on its behalf is generally personally liable unless a new contract is agreed.

  1. AZenith Ltd, because it has accepted the benefit of the stationery
  2. BMarco personally, and the company cannot automatically ratify the contractCorrect
  3. CNobody, because a contract made before incorporation is void

Explanation

A company cannot be bound by a pre-incorporation contract, and it cannot ratify it after incorporation because it did not exist when the contract was made. The person who purports to contract for it is generally personally liable. Using the goods does not make the company a party, although a new contract (novation) could be agreed.

Did you get it right without looking?

One question tells you little. A timed set on The formation and constitution of a company shows your real accuracy, how long you take and where you lose marks.

Practise The formation and constitution of a companyFree diagnostic mock

More The formation and constitution of a company questions