Distinction In Between Pre Incorporation Contracts & Provisional Contracts: A business being an artificial person can contract only through its representatives. An agreement will be binding on a business just, if it is made on its behalf by any individual acting under its authority, express or indicated.
Agreements made before the incorporation of company is called pre-incorporation agreements Contracts made after incorporation, however prior to the company becomes entitled to commence service are called provisionary contracts Provisionary contracts disappear valid as arrangements associating with beginning of business have been left out by Companies (Amendment) Act,2015 The agreements after the incorporation ought to be within the province of Memorandum of Association. Now examine more details for Difference In Between Pre Incorporation Contracts & Provisional Contracts from below …
Pre Incorporation Agreements
Before incorporation, a company is non-existent and has no capacity to contract. A contract by a promoter professing to act on behalf of a company prior to its incorporation never binds the business because at the time the contract was concluded the company was not in existence.
Difference Between Pre Incorporation Contracts & Provisional Contracts
| Pre-Incorporation Agreements | Provisional Contracts |
| An agreement participated in by the promoters on behalf of a proposed company i.e. prior to incorporation of a company | Any contract made by a company before the date at which it is entitled to begin company |
| A Pre-Incorporation contract is governed by Particular Relief Act, 1963. | A Provisional Agreement is governed by Business Act, 2013. |
| The term Pre-Incorporation Contract is relevant for public along with personal business | The term Provisional Agreement is not appropriate for Personal Business |
| Term Pre-Incorporation Agreement is relevant for every single company, although it has no share capital | The term Provisional Agreement is not relevant for a business not having share capital. |
| A Pre-Incorporation contract is not binding unless the company adopts the contract. | A provisional agreement ends up being binding on the business when it gets the certificate of commencement. |
Contracts made after incorporation of company
A business can do all such acts, as by its Memorandum, it is expressly or impliedly authorised, to do. Any purported act, which is not so authorized, is extremely vires the company, and the company can not implement it, nor can the other party implement it against the business. Such a contract can not be ratified even if every member of the business assents to it, as it is void ab initio. This rule is typically known as the Doctrine of Ultra Vires. ‘Ultra vires’ indicates “beyond the powers”. The powers of the company are derived from its Memorandum of Association and the statute constituting it. Just those contracts which are intra vires or within the powers of the business will be valid and binding.
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