promotion and pre incorporation contract

Question 1

who is a promoter

Answer 1

a promoter is someone who undertakes to take part in the formation of a company S85 CAMA 2020 AS AMENDED

Question 2

what are promotional activities

Answer 2

these are activities carried out by promoters and they include
1. raising capital
2. finding directors
3. acquiring property on behalf of the proposed company
4. personality shopping ; employment
5. land acquisition
6. advertisement
7. engaging in services of professional
8. providing prospectus for proposed company
9. obtaining requsite permit

Question 3

is a professional exercising their professional duty and being paid professional fees a promoter

Answer 3

NO. GARBA V SHEBA

Question 4

can a professional also be a promoter

Answer 4

YES EMMA SILVER MINING CO LTD V LEWIS

Question 5

duties of a promoter

Answer 5

1. duty to not make secret profit
2. duty to disclose
3. duty to account
4. duty to ensure the company does not encounter loss

Question 6

remedies for breach of promoters duties

Answer 6

recission
non ratification
claim for damages
reclaim secret profit

Question 8

What is Rescission

Answer 8

Rescission is cancellation or revocation of contract

Question 9

Is there a limitation of time for promoter action

Answer 9

No there’s isn’t S 86(4) Cama

Question 10

What is ratification of contract

Answer 10

Ratification simply means a formal contract executed to that effect a contract entered by promoter is domesticated by the company after incorporation.
S86(3) and a promise to pay sum of money incurred by the promoters on behalf of the company.

Question 11

Who ratified a contract

Answer 11

1. board of directors excluding the promoter
2. All members of the company
3. Members in general meeting independent of the promoters s 86 (3) Cama

Question 12

Remuneration of promoters

Answer 12

Promoters don’t get paid unless it’s stated in the article of association of the company or if a contract has been entered to that effect

Question 13

Pre incorporation contracts

Answer 13

These are contract entered signed by the promoter on behalf of the company before incorporation it is usually entered by promoters with a third party S96(1) CAMA
THE PRE INCORPORATION CONTRACT ARE TGE LIABILITIES OF THE PROMOTER ALONE NOT THE COMPANY S96(2)

Question 14

Types of pre incorporation contract

Answer 14

1. Joint venture agreement
2. Shareholders agreement
3. Contract for payment of promoters expenses
4. Confidentiality agreements
5. Patent or trademark agreements
6. Transfer of technology agreement
7. Contract for acquisition of business or property
8. Contracts for conversion from partnership to incorporated company
9. Directors service contract
10. Consultancy agreement

Question 15

Effect of pre incorporation contracts

Answer 15

A company can ratify after formation as if it were in existence when the contract was entered into. The company became bound and entitled to the benefits herein

If there is no express agreement the promoter will be personally liable and can benefit therefrom

Question 16

A case for pre incorporation contract

Answer 16

Societe generale bank nig Ltd v societe generale favoriser the case revolves around the issue of liability and a company being bound by a pre incorporation the judgement was granted in favor of the plaintiff stating that a company can ratify a pre incorporation contract once it has been formed and has acquired legal personality
And that such contracts are binding on the company once ratified.

Question 17

Legal status of pre incorporation contract

Answer 17

There are two
Common laws
And in CAMA

COMMON LAW POSITION: this states a a person cannot be absolved of liability even after the company has ratified it the case of kelner v Baxter so a company is not bound by pre incorporation contract even after ratification.
The position in CAMA in section 96 (2) states that the promoters are personally liable but upon incorporation the company may ratify the pre incorporation contract and it becomes binding

Question 18

Importance of pre incorporation contract

Answer 18

1. Provide and amicable mode of dispute resolution
2. Ensures compliance with relevant law
3. Provide the roles of parties in the promotion and management of the company
4. Enhances privacy by ensuring private matters are not necessarily in the memoart
5. Allows for detailed issues relating to the operation of the company to be addressed

Question 19

Features of pre incorporation contract

Answer 19

1. It is entered usually by the promoter and a third party
2. Its only binding on the promoter
3. The company is not bound by it unless it ratifies it.
4. The contract are made before the existence and incorporation of a company

Question 20

Content of shareholders agreement

Answer 20

Commencement clauses
Date
Parties
Recital
Confidentiality clause
Testimonium
Execution clause
Attenuation clause

Question 21

Content of joint venture agreement

Answer 21

1. Parties
2. Commencement Clause
3. Management structure
4. Capital contribution
5. Profit and loss sharing
6. Supremacy clause
7. Confidentiality clause
8. Duration
9. Determination
10. Account
11. Governing laws
12. Arbitration

Question 22

Draft the commencement clause of shareholder agreement and the execution clause