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What does novating a contract mean?
How does the promoter avoid liability on pre incorporation contracts by novating the contract?
Would you please explain it.
Thanks in advance.Hi Tabasumze
To novate a contract is essentially to enter into a new contract. In the context of a Promoter, this would be where after the company has been formed the Promoter now a director would approach the other contracting party and enter a new contract which replaces the old pre incorporation contract. But this can only be done with the approval of both contracting parties. The new contract would be in the name of the company and not the individual Promoter and that is how they avoid personal liability.
Kind regards,
Vijay
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