What is meant by pre-incorporation period?

What is meant by pre-incorporation period?

Profit of a business for the period prior to the date company into existence is referred to as Pre-Incorporation profit. Hence prior period item are those item which is done before incorporation of the company. Profit prior to incorporation is the profit earned or loss suffered during the period before incorporation.

What is a pre incorporate contract?

PRE-INCORPORATION CONTRACTS. Are contracts purported to be made on behalf of the company before its incorporation[16]. Pre-incorporation contract is defined in Section 72 as “any contract or other transaction purporting to be entered into by the company or by any person on behalf of the company prior to its formation”.

What are pre-incorporation activities?

In conducting the necessary transactions to the formation of a corporation, a promoter who may not be an incorporator, frequently enters into preincorporation agreements, including agreements with third parties, formal agreements and resolutions to incorporate, and stock subscription agreements.

What is the purpose of a pre-incorporation contract?

Section 1 of the Act defines a PIC as “a written agreement entered into before the incorporation of a company by a person who purports to act in the name of, or on behalf of, the proposed company, with the intention or understanding that the proposed company will be incorporated, and will thereafter be bound by the …

What is pre incorporation and post incorporation?

In short, the profit earned after the date of purchase of business is called ‘Post-incorporation or Post-acquisition profit’ and the profit earned before the date of purchase of business is termed as ‘Pre-incorporation profit’.

What is pre incorporation period and post incorporation period?

period: The period before incorporation and the period after incorporation is called as pre incorporation and post incorporation period. (i,e. period between the business taken over and incorporated) • Post incorporation period = April to Dec = 9 months. incorporation is called as Post incorporation Profit/Loss.

Are pre-incorporation contracts enforceable?

(c) By accepting the benefits from the contract, either expressly or impliedly. And hence, the pre-incorporation contract becomes legally enforceable against the company.

What is the effect of pre-incorporation contract?

The company cannot be sued on the preliminary Contracts even though when it comes into existence and takes the benefit thereof. The company cannot be sued for those expenses, which are incurred before its incorporation because it was not in existence when the expenses were actually incurred.

Who enters into pre-incorporation contracts on the behalf of company?

Section 15(h) of the Specific Relief Act, 1963 if we go by the definition of this, it expressly states that the contracts incorporated before the incorporation stage are entered into by the promoters of the for the very purpose and utility of the company and subject to terms of incorporation of the company, the company …

What are pre-incorporation expenses?

Pre-incorporation expenses are those expenses which are incurred by the promoters till the time the Indian entity obtains its legal existence and is registered with the government authorities.

What are the requirements of a pre-incorporation contract?

The only legal formalities for a valid pre-incorporation contract under the new Companies Act are thus that the contract must be in writing and must be entered into in the name of or on behalf of the company still to be formed.

Why and how are pre and post incorporation profits and losses calculated?

(a) Gross Profit should be apportioned between Pre-incorporation and Post-incorporation periods on the basis of Sales Ratio. If Gross Profit is not given the same is to be found out by preparing a Trading Account. (b) Time Ratio between Pre-incorporation and Post-incorporation period should be computed.

What does it mean to have a pre incorporation contract?

A pre-incorporation contract refers to a contract where one party of the contract is a company that is yet to be incorporated. The key issue in this case is whether either Lead Balloon or Jeremy will be bound by the pre-incorporation contract.

Can a promoter be replaced in a pre-incorporation contract?

In the situation of Novation of Contract, the Company can replace the promoter from the pre-incorporation contract. But one might say that such contract would not be called pre-incorporation contract, but it should be called post-incorporation contract; because novation of contract result into a new contract.

Who is liable for a breach of a pre-incorporation contract?

If a company does not ratify or adopt a pre-incorporation contract under the Specific Relief Act, then the common law principle would be applicable and the promoter will be liable for breach of contract. Whether Promoter Is Personally Liable For Pre-Incorporation Contract?

What do you need to know about a pre incorporation subscription?

Since the corporation did not exist before its formal creation, it can’t be bound by agreements that were made before its incorporation — unless it ratifies the agreements after being created. Stock subscriptions are defined as agreements that state the number of shares (of a yet-to-be-formed corporation) to be purchased at a particular price.