A promoter signs a contract on behalf of a company that has not yet been incorporated. Under the Companies Act 2006, who is personally liable on this contract?

Answer options:

The company, once it is incorporated.

The promoter is personally liable.

The directors of the company, once appointed.

The contract is void and no one is liable.

How to approach this question

Apply Section 51 of the Companies Act 2006 regarding pre-incorporation contracts.

Full Answer

B.The promoter is personally liable.✓ Correct

Under s.51 of the Companies Act 2006, a contract purported to be made by or on behalf of a company before it is formed has effect as a contract made with the person purporting to act for the company (the promoter), making them personally liable.

Common mistakes

Assuming the company can simply 'adopt' or ratify the contract after incorporation.

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Practice the full ACCA LW — Corporate and Business Law Practice Exam 1

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A promoter signs a contract on behalf of a company that has not yet been incorporated. Under the Companies Act 2006, who is personally liable on this contract?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA LW — Corporate and Business Law Practice Exam 1

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