Marcus is acting as a promoter for a new tech startup, 'CyberShield Ltd', which has not yet been incorporated. He signs a lease agreement for office space, signing the document 'Marcus, on behalf of CyberShield Ltd'. Once the company is incorporated, it moves into the office. Who is legally liable on the lease agreement under the Companies Act 2006?

Answer options:

CyberShield Ltd is liable, because they moved into the office and implicitly ratified the contract.

Marcus is personally liable, as the company did not exist at the time the contract was made.

Both Marcus and CyberShield Ltd are jointly and severally liable.

The contract is void and neither party is liable.

How to approach this question

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

Full Answer

B.Marcus is personally liable, as the company did not exist at the time the contract was made.✓ Correct

Under Section 51 of the Companies Act 2006, a contract that purports to be made by or on behalf of a company at a time when the company has not been formed has effect as one made with the person purporting to act for the company (the promoter). The promoter is personally liable. A company cannot ratify a pre-incorporation contract; a completely new contract (novation) must be formed.

Common mistakes

Believing that a company can simply 'adopt' or 'ratify' a pre-incorporation contract once it is formed.

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