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What are the legal implications of pre-incorporation contracts under the Companies Act, 2063?
According to Section 17 of the Companies Act, 2063, contracts made prior to the incorporation of a company are considered proposed contracts and are not initially binding on the company. If a person enters into such a contract on behalf of a proposed company, they are personally liable for the obligations under that contract. However, if after incorporation, the company, within a reasonable time, accepts or endorses the pre-incorporation contract through its actions, such as commencing operations in the leased space, the contract becomes binding on the company. This acceptance releases the individual from personal liability. In summary, under the Companies Act, 2063, a person entering into a contract on behalf of a company before its incorporation is personally liable for that contract. This liability can be transferred to the company if the company ratifies the contract within a reasonable time after its incorporation.
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