PRE-INCORPORATION MATTERS

Question 1

What is incorporation?

Answer 1

Process of constituting a company as a legal corporation

Question 2

Who is a promoter?

Answer 2

Person who undertakes in the formation of a company with reference to a given project.
He is not an agent, trustee or legal practitioner but occupies a fiduciary duty so must act in good faith.

Garba v Sheba International Nigeria Ltd.

Question 3

Mention 3 duties of the promoter

Answer 3

1. Duty to account for money/properties received in the course of promotion activities
2. Duty to disclose conflict of interest in transactions with the company
3. Duty not to make secret profit in the course of promotion
4. Duty to act in the best interest of the company
5. Duty not to exploit confidential information obtained in the course of promotion activities

Question 4

Mention 3 liabilities of the promoter

Answer 4

1. Action to render account of money or property received in the course of promotion
2. Refusal to ratify pre-incorporation contract tainted with conflict of interest
3. Action to account for secret profits made in the course of promotion activities
4. Action to rescind contracts
5. Action for damages for wrongful exploitation of confidential information

Question 5

DRAFT a Joint Venture Agreement

Answer 5

see drafts

Question 6

What is the rule for remuneration of a promoter?

Answer 6

General rule is that a promoter has no right against the company for payment for services rendered before the incorporation of the company.
Any promise of payment is not binding.

Question 7

When is a promoter entitled to remuneration?

Answer 7

If the articles of association mandates his payment and the contract is ratified by the company after incorporation

Question 8

What is a pre-incorporation contract?

Answer 8

Contract entered into on behalf of the company before incorporation. Necessary to protect interest and reflect common intention of parties towards formation.
Examples include: joint venture agreement, confidentiality agreement and shareholder agreement

Question 9

Are pre-incorporation contracts binding?

Answer 9

Generally, these contracts are not binding on the company as it has not come into existence at the time of entering such contract.
However, Section 72(1) CAMA says that a company may ratify such contracts upon incorporation.

Question 10

What do you do if there is conflict between the pre-incorporation contract and the Memorandum?

Answer 10

The Memorandum will prevail regardless of the inclusion of a supremacy clause

Question 11

Edokpolo & Co. Ltd. v Sem-do Wire Industries Ltd. & Ors

Answer 11

A supremacy clause included in the object clause of a memorandum is merely an indication of a strong desire by the contracting parties