Pre-incorporation contracts

Question 1

When is a company incorporated

Answer 1

A company is only incorporated and considered a juristic person once relevant documents have been sent to the CIPC and have been approved

Question 2

Common law solutions

Answer 2

1. The agreement benefits the third party(stipulatio alteri)
2. The promoter(person who is incorporating the company) concludes the contract in their own name-Cession or delegation

Question 3

The agreement benefits the third party(stipulatio alteri)

Answer 3

Stipulans- person incorporating the company
Promitten- the party the contract is being concluded with
Third-party- the company
Stipulans contract with another for the benefit of the company to be formed.

Risk
1. Will the company be incorporated
2. The company still has the right to accept or reject the contract.
The stipulan holds the obligation until the company is incorporated and has accepted or rejected the obligation, if the company does reject the contract the stipulan doesn’t hold the obligation anymore

Question 4

Promotor as principle

Answer 4

Contracts personally in their own name and is therefore personally liable for the contract

Once the company is incorporated
- Cede rights and delegate obligations to company.
- Remember with cession, someone can cede rights without the consent of the other person who is receiving the rights.

Two contracts created:
1. A contract between the incorporator (promoter) and the other contracting party
2. A contract between the incorporator (promoter) and the company

Liability of principle:
Until the company is incorporated (and accepts the contract); or If the company rejects the contract

Question 5

Legislation

Answer 5

Statutory arrangement (S 21 Companies Act)

Before
- Entering into a contract on behalf of OR in the name of a company* that has not yet been incorporated.
- A person may enter into a written agreement in the name of purport to act in the name of, or on behalf of an entity that is contemplated to be incorporated in terms of this Act but does not yet exist at the time.

criteria:
The parties concluding a pre-incorporation contract in terms of S21 must in some way refer to the company. Either refer to the reserved name that has been submitted to the CIPC or the registration number on the application

After:
The company may ratify it and will then be liable as if it were the party to the agreement when the agreement was made.

Requirements for company liability:

1. Written agreement between the parties.
2. Must be in the name of or on behalf of a non-existent company
3. Company may not yet exist
4. Ratification of the contract.
   - The way the ratification decision takes place is that the company must submit a notice to the CIPC and then notify every contracting party that is affected by this decision.
   - Ratify or reject agreement completely, partially or conditionally.
   - If not ratified or rejected within 3 months - company deemed to have ratified the contract.

If no ratification or not incorporated:
- Jointly and severally liable (contract does not have to provide for liability)
- Remedy for incorporator: can claim from company if it derives benefits from agreement