2.1 Promoters and pre – incorporation contracts and deeds.

2.1 PROMOTERS AND PRE-INCORPORATION CONTRACTS AND DEEDS.

Promoters are individuals or entities who take the initiative to conceive and set up a company. They play a vital role in the formation and organization of the company before it is officially incorporated. Promoters identify the business opportunity, arrange for initial financing, undertake necessary groundwork, and take steps to bring the company into existence.

The role of promoters typically involves activities such as:

1. Identifying a viable business idea or opportunity.
2. Conducting feasibility studies and market research.
3. Raising initial capital.
4. Securing necessary permits and licenses.
5. Assembling a team of professionals.
6. Negotiating contracts and agreements.

Promoters have a fiduciary duty to act in the best interests of the company and its prospective shareholders. They must disclose all relevant information and avoid conflicts of interest while performing their duties. Promoters are personally liable for any pre-incorporation actions and contracts they enter into on behalf of the company.

In Gluckstein Vs. Barnes.

The promoters bought a property at Ksh. 140,000 from a company in financial difficulties. They had made profit of Ksh. 40,000 on the purchase price. They then sold it to the company at an additional profit of Ksh. 20,000. They disclosed their profit of Ksh. 40,000 but not the Ksh. 20,000. When company went into liquidation a few years later, the court held that the promoters were liable to hand over Ksh. 20,000 being secret profit.

Pre-incorporation contracts

Pre-incorporation contracts are agreements entered into by promoters on behalf of a company that is yet to be incorporated. These contracts are made during the period when the company is in the process of being formed, but before it has obtained legal recognition as a separate legal entity.

Pre-incorporation contracts can include various types of agreements, such as:

1. Lease or purchase of property or assets.
2. Employment contracts or service agreements.
3. Supplier agreements.
4. Contracts with customers or clients.
5. Loan agreements or financing arrangements.It’s important to note that since the company does not yet legally exist, pre-incorporation contracts are typically made in the name of the future company, with the intention that they will be ratified or adopted by the company once it is incorporated. Promoters are personally liable for these contracts until the company is incorporated and assumes the contractual obligations.Deeds of ratificationDeeds of ratification are legal documents executed by a company after its incorporation to validate or adopt pre-incorporation contracts or actions made by the promoters on its behalf. These deeds serve to confirm that the company, upon its formation, intends to assume and be bound by the terms of the pre-incorporation contracts.By executing a deed of ratification, the company effectively adopts the pre-incorporation contracts, making them binding on the company. Once ratified, the company becomes directly liable for the obligations and responsibilities under those contracts. The deed of ratification essentially cures any lack of legal capacity the company had at the time the pre-incorporation contracts were made.