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Don was instrumental in forming Eden plc. Don commenced work on the formation on 1st October 2015, the company was issued its certificate of incorporation on 1st November 2015, and its trading certificate on 10th November 2015. The company began trading on 1st December 2015
It has subsequently come to the attention of the board of directors that prior to the incorporation of the company Don entered into a contract in the company’s name to buy computer equipment, which the board of directors do not wish to honourOn what date did Eden plc become a legal entity capable of entering into contracts in its own name?
A. 1st October 2015
B. 1st November 2015
C. 10th November 2015
D. 1st December 2015I chose C but the model answer suggests B.
For C, as Eden plc is a public company, it must obtain a trading certificate before it can trade (contract to buy computer equipment).
For B, I thought the certificate of incorporation dated 1st Nov 2015 would only be relevant if the company is private.Please help me clarifying this,
Thank you.Iniss, yet another tricky one! I believe that this boils down to one’s understanding of the expression ‘trading’ or ‘commencing to trade’
Let me ask you, would the signing of a lease to rent some property fall into your understanding of a trading activity?
How about incurring expenses to advertise for and interview prospective employees? Is that within your understanding of ‘commencing to trade’?
I hope that you have answered both those questions in the negative – they are not trading activities.
How about the purchase of some food with the intention of resale? Or the sale of some food in advance of its purchase with the intention to buy ‘tomorrow’?
It has always been my interpretation that ‘trade’ and ‘trading’ involved the acquisition and disposal (or proposed acquisition and disposal) of specific goods (rather than just a general business plan) that is necessary to constitute ‘trade’.
From the date of its incorporation, a company is its own self and is capable of entering into contracts in its own name. But it cannot ‘trade’ until it has acquired a trading certificate.
OK?
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