Unit 3: Corporate Contract and Conversions of Company
3.1 Meaning of Corporate Contract and its Limitation
A corporate contract = a contract made by the company, through its authorised organs (the board within its powers; directors and officers within delegated authority), binding the company (not the members personally — the personality’s logic, Sumargi Parajuli, Unit 1). The limitations’ four walls: (i) the objects’ wall (ultra vires — the MOA’s purposes, Unit 2.8); (ii) the authority’s wall (the organ’s competence — the board/officer’s delegated power; the Tara Prasad Lamichhane discipline of unauthorised directorial acts); (iii) the formalities’ wall (the seal or authorised signature; the documentation the third party should verify — the indoor-management balance, Unit 2.9–2.10); (iv) the law’s wall (statutory prohibitions and sector overlays). Within the walls, the ordinary contract law governs (Law of Contract-I, Semester 4) — the company as any other party.
3.2 Preliminary Contracts entered into by Promoters
The promotion-era contracts: the promoter’s preparations — property options, professional engagements, the pre-launch borrowings. The law’s position: made before the company exists, they cannot bind it at formation (no principal yet); the promoter is personally liable (the contracting party), with the company’s later adoption (novation) transferring the benefit and burden — the adoption must be the company’s own act (the board’s resolution within power), not a mere assumption of benefits; the disclosed promotion agreements (2.2’s discipline) survive as the company’s contracts if properly taken over.
3.3 Pre-incorporation Contracts
The definition’s core: contracts purporting to be made on the company’s behalf before incorporation (“for and on behalf of the company to be formed”). The classical rule: the company did not exist — it cannot be bound (no ratification in the strict sense: principals must exist when the act is done); the counterparty’s recourse lies against the agent/promoter personally
This is a preview. The complete Company Law and Governance notes — full unit, Exam Focus box and model questions — are in the PDF / full version. Get the complete notes →