2.1 Promoters and pre-incorporation contracts and deeds.

Promotion of a company is that process by which, a company is incorporated by registration under the Companies Act and established financially as a going concern. The promoter must;

  • Decide upon the name of the Company, its objectives, capital, the extent of each member’s liability, location of registered office, etc. These are to be included in the Memorandum of Association.
  • Draw up the rules for internal management and this is included in the Articles of Association.
  • Arrange for the printing of Memorandum and Articles Association.
  • Nominate the directors, auditors, bankers and to appoint the proposed secretary.
  • Prepare, print and issue a prospectus for (public companies) in order to acquire working capital.
  • Enter into contracts so far as they are necessary for the formation of companies.


A promoter is generally anyone who assumes primary responsibility with regard to matter relating to promotion.

In Twycross Vs Grant, justice Cockburn   described a promoter as one who (undertakes to form a company with a given objective, set it going and take all necessary steps to accomplish that purpose

A promoter is accountable to the Company for all money secretly received or any profit made directly or indirectly out of promotion whether made at the expense of the company or not unless the company consent to it after full disclosure of material facts, thus a promoter who makes a secret profit can be compiled to surrender to the company.

Pre-Incorporation Contracts

These are contracts purportedly entered into by promoters on behalf of the company before incorporation.

The following rules relate to pre-incorporation contracts.

  1. All pre-incorporation are void as against the company and they cannot be ratified by the company because it had not come into existence at time of the purported act.


In Kelner vs Baxter

A company was being formed to buy goods from Mr. Kelner. The contract was made by the promoter on behalf of the company for the purchase of wine from Mr. Kelner. When the company was formed the wine was delivered to it but before payment was made the company went into liquidation. It was held that the promoters were personally liable on the contract as the company could not be bound by contract.


  1. If after incorporation, the company re-negotiates a pre-incorporation contract on similar/different terms with a 3rd party this discharges the pre-incorporation contract and the company become liable on the newly negotiated contract.


In Howrd Vs Patent Ivory Limited

X agreed with Y who was acting on behalf of a company to be formed to sell a certain property to the company for cash. After incorporation X agreed with the company to take part of purchase money in debentures and the balance in cash. The contract was held to be valid and the company was bound by it because the variation of the terms as to the mode of payment amounted to a fresh contract after incorporation.


  1. A person who purports to make a contract on behalf of the company to be formed does so at his own risk or that even if he was to provide that his liability would cease upon incorporation he is liable.
  2. A company cannot after incorporation enforce a pre-incorporation contract made in its name.


Natal Land Company Vs Pauline Colliery Syndicate

N Company agreed with a person acting on behalf of a future company F that N Company will grant a lease of a mine to P. P discovers coal but N Company refused to grant the lease to P. P Company sued for specific performance of the contract. It was held that P could not compel N to grant the lease as specific performance could not be granted due to lack of mutuality because the contract would not have been enforced against P and therefore P could not also enforce it against N.