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1. During pre incorporation why is the third party liable ( it is the party with whom the contract is made )
2. What role does third party plays during pre incorporationChp 10 Company formation (bpp) global law
Safiya, I don’t have to hand a copy of the BPP text from which you quote, so I’ll do the best I can to answer your question
Having read your post (at least) 3 times, I fear that you may have misinterpreted BPP … unless the ‘third party’ to whom you refer is the promoter
In the period before a company is actually formed ie before the Registrar has issued a Certificate of Incorporation, the company doesn’t exist
And if it doesn’t exist, it cannot be viewed as a legal person
And, if it’s not a legal person, it cannot enter into contracts
But there are times when the person responsible for forming the company will wish to enter contracts on behalf of this non-existent company and these are the pre-incorporation contracts
But, of course, it needs two people to enter into a valid contract. We have the ‘outsider’ with whom the promoter is trying to contract and we have the promoter him/herself acting apparently on behalf of …? S’he cannot be acting on behalf of the company because the company doesn’t exist so it’s not possible to hold the company liable under the contract
Therefore, it has to be the promoter that is liable
As one judge in history famously stated, ‘It’s like buying a quantity of corn on behalf of your horse and trying to claim that the horse is liable’
So if, in your posts, you are referring to the promoter as ‘the third party’, then maybe I have answered your question 1
Question 2 – what role does the third party play? Again, I have to assume that BPP have allocated titles as:
1 the company
2 the ‘supplier’ that is ‘contracting with the company’ and
3 (the third party) the promoterand, if my assumption is correct, your question is ‘What is the role of the promoter?’
Very, very simply, this is the person that has been asked to form a company on behalf of persons that subsequently will (probably) be appointed to directorial positions after the company has been formed
The promoter is ‘the middle man’ that facilitates the formation of companies
Will that do?
So the company with whom the promoter makes a contract on behalf of his company is know as the supplier ?
Let’s try to make this clear (I used the expression ‘supplier’ simply to try to distinguish from the embryonic company and from the promoter)
P, a person active in the profession of forming companies at the request of others, has been asked by A, B and C to form a company, Alphabet Islands Limited
Whilst in the process of forming the company, P takes it upon himself to buy on the company’s behalf a villa near the beach on Klein Curacao from Gilmar Pisas, the prime minister
However, after the company was issued with its certificate of incorporation and ownership transferred by P to A, B and C, these 3 newly appointed directors / shareholders were then told that P had bought the villa on behalf of the company
BUT!! Thet didn’t want the villa, and told P that they didn’t want it
So P told Gilmar and Gilmar said ‘But you signed a contract’
P said ‘Ah, but I signed it on behalf of the company Alphabet Islands Limited so don’t you try suing me for breach of contract’
But it’s not possible for an agent to act on behalf of a non-existent principal. And because Alphabet Islands Limited didn’t exist at the time P entered into the contract with Gilmar, P couldn’t have been acting on behalf of Alphabet Islands Limited
So therefore must have been acting on his own account and was therefore liable in breach for any losses sustained by Gilmar
Is that any better?
Thank u so much for ur explanation sir I have understood why promoter is liable my doubt is who is the third party and the promoter r they the same or third party is with whom promoter made the contract
“third party is with whom promoter made the contract” would be my best guess, dependent upon the context. But from what you have written, I would suggest that the third party is NOT the (as-yet-unborn) company NOR the promoter
So, as in my earlier post, it’s the supplier
OK?
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