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

Which course of action would best allow Greenfield Ltd, once incorporated, to obtain the benefit and burden of a contract negotiated by its promoter before incorporation?

A novation after incorporation is the best course. It is a new agreement between the company, the promoter and the other party that substitutes the company for the promoter, because ratification is unavailable for a company that did not exist when the contract was made.

  1. AA novation agreement made after incorporation between the company, the promoter and the other partyCorrect
  2. BThe promoter signing the contract in the company's proposed name
  3. CThe company ratifying the contract by a board resolution after incorporation
  4. DWaiting until the other party performs and then claiming the benefit

Explanation

A novation is a new contract after incorporation that replaces the promoter with the company and releases the promoter. Ratification fails because the company did not exist at the time. Signing in the proposed name leaves the promoter liable.

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