n South African Law Journal - Pre-incorporation contracts : the reform of section 35 of the Companies Act

Volume 124, Issue 2
  • ISSN : 0258-2503
  • E-ISSN: 1996-2177



Although historically progressive, the solution in s 35 of the Companies Act 61 of 1973 to what has been called 'the conundrum of the pre-incorporation contract' has become out of step with modern trends in other jurisdictions and with contemporary business practices. This article both demonstrates that s 35 is in dire need of a thorough overhaul and shows what changes are needed. Noting that s 35 protects the interests of the company and the agent while saddling the third party with the full risk of non-incorporation and non-ratification, the article proposes that s 35 should be amended so that a promoter acting as agent for a yet-to-be formed company be subjected to a statutory warranty that the company will be incorporated within a reasonable (or agreed) time and that it will within a reasonable (or agreed) time after incorporation ratify the pre-incorporation contract. The article also investigates what the rights of the parties should be in the interval before ratification, and whether the formalities prescribed in s 35 should be retained.

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