n SA Mercantile Law Journal = SA Tydskrif vir Handelsreg - Company promoters and the enforcement of pre-incorporation contracts

Volume 22, Issue 1
  • ISSN : 1015-0099
  • E-ISSN: 1996-2185



It is a well-established principle of law that a company does not exist as a legal entity until incorporated. For all practical purposes, however, prior to incorporation someone must act on behalf of the company. Formalities of incorporation need to be attended to; professionals must be instructed and paid to prepare the necessary incorporation documents; the business proposal needs to be appraised and initial finances raised. Getting through these rigours of incorporation involves entering into contracts with third parties. These contracts could not only relate to the process of incorporation but could also further the company's objects in the memorandum. As the company does not yet exist in the eyes of the law, there is always the problem of the assumption of liability and of enforcing the contract, either by the company when formed or the person who entered into these contracts on its behalf. The person engaging in these functions for the company under formation is often associated with the term 'promoter' or 'trustee'. This article seeks, first, to identify the promoter of the company and the legal duties of the promoter, and, second, to investigate the capacity of this promoter and/or the company when formed to take the benefit and assume the liability for a contract concluded before the company is formed.

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