The common law position on pre-incorporation contracts refers to the legal status of agreements made by individuals on behalf of a company that has not yet been officially incorporated. These contracts are often entered into before a company is formed, and they can involve various forms of business agreements, including leases, employment contracts, and purchases of goods and services.
Under common law, pre-incorporation contracts are generally treated as binding agreements between the individuals involved in the agreement. This means that the parties to the contract are the individuals who entered into the agreement, rather than the company that has not yet been formed.
However, once the company is incorporated, the contract can be “adopted” by the company. This means that the company can assume the rights and obligations of the contract, and the individuals who entered into the agreement on behalf of the company are released from their personal liability.
If the company chooses not to adopt the contract, the individuals who entered into the agreement may be held personally liable for any breach of contract or damages that may arise from the agreement. This can be a significant risk for individuals who enter into pre-incorporation contracts, as they may not have the protection of limited liability that is afforded to companies.
To mitigate this risk, it is important for individuals to carefully consider the terms of any pre-incorporation contracts that they enter into. They should ensure that the agreement includes provisions that allow for adoption by the company, and they should seek legal advice to ensure that they fully understand their potential liability.
In summary, the common law position on pre-incorporation contracts is that they are generally binding agreements between the individuals involved in the agreement. However, individuals who enter into these agreements should be aware of the potential liability that they may face if the company chooses not to adopt the contract. Careful consideration and legal advice can help to mitigate this risk and ensure that the agreement is structured in a way that protects all parties involved.