Question

Tick the correct answer.
A company can ratify preliminary contracts after incorporation.

• A. True
• B. False

Answer 1

The correct option is B False

Preliminary contracts are contracts entered into by the promoters on behalf of the company before its incorporation with third parties.

It is usual for the promoters to enter into these contracts of purchases of assets on behalf of the company about to be formed but before it is actually formed. They generally enter into these contracts as agents or trustees of the company, which has not yet come into existence.

A company cannot sign or ratify the preliminary contracts once it has been incorporated as such contracts are to be stated before the existence and must be clarified at early stages so that there is no rift in the company related to any matter as it may cause a delay in day-to-day working.

Hence, the statement is false.