A pre-foundation contract, too specific to the nature of the work and activity in which the company will be involved, could hinder the ability of incorporaters to develop in new sectors of activity. Pre-foundation agreements (or pre-foundation contracts) define operations, management and define who has control before the company`s first meeting. In addition to the pre-foundation agreement, many shareholders establish a shareholders` agreement and a confidentiality agreement. This group of documents can help ensure that there are no surprises once the company has actually been created. As the group has not yet been created, the pre-foundation agreement will give authority to its incorporations. The foundation agreement is concluded before the directors submit formal statutes in the state where the business plans are to be constituted. Directors, also known as the company`s promoters, may be held personally liable for any breach of the agreement if the company is not actually incorporated. Therefore, all parties to the agreement should insist that the document confirm that the company has not yet been created. This language ensures that they avoid personal liability. When a promoter enters into a contract on behalf of a company to be created, the promoter may be personally responsible for the performance of the company`s obligations if, for whatever reason, the company has not been incorporated or does not accept the contract.
If the pre-foundation agreement is concluded, the company does not exist and therefore cannot be a party to the contract. The proponent of the project must therefore be a contracting party to the contract and, according to the principles of Agency law, the promoter of the project is personally bound as an agent acting on behalf of a non-existent client. The inclusion of terms in English law is the inclusion of terms in contracts concluded under English law so that the courts recognize them as valid. In order for a clause to be considered included, it must meet three requirements. First, the deadline should be announced before or during the contractual agreement. Second, the conditions must be included in a document that must be the subject of a contractual agreement. Third, “appropriate action” must be taken by the party making the term to draw the other party`s attention to this point. The rules for the insertion of terms into English law are almost all at the level of the common law. A pre-founding contract is conceived as a temporary agreement on legal agreements before the act of creation itself. However, as the LawTeacher website notes, such agreements can lead to complications if not carefully crafted. Before creation (i.e.
registration with companies and the Intellectual Property Commission), there is no company and cannot perform legal acts. In addition, no one can act as an agent of the company, because an agent cannot act for a non-existent client. However, Parliament anticipated that it might be commercially necessary for a person to enter into a contract for a company that does not yet exist, and therefore included Section 21 in the Companies Act 71 of 2008, which is the possibility of entering into pre-foundation contracts. The organizers of the company who wish to avoid personal liability must ensure that the pre-group contract stresses that the contractor is fully aware that he is partnering with a soon-to-be-created company. Such explicit recognition in the agreement can save organizers a lot of money and misunderstandings and avoid personal responsibility. Trade agreements: If you work with business transactions and contracts with other companies, a pre-founding contract can protect your business from actual creation.