CIMA BA4 · Chapter 13 · Question 4 of 10
Under English law, a promoter signs a contract on behalf of a company before the company is incorporated. Who is liable on the contract?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The promoter personally, subject to any agreement to the contrary
Explanation
Under section 51 of the Companies Act 2006, a pre-incorporation contract takes effect as one made with the person purporting to act for the company, who is personally liable, subject to any agreement to the contrary (see also Kelner v Baxter). A company cannot ratify a contract made before it existed; it would need to enter a new contract (novation).
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