When starting a business, entrepreneurs often enter into pre-incorporation contracts with suppliers, contractors, and other vendors. These contracts are a way to secure services or goods in advance of incorporation, which can take several weeks or even months to complete. However, once a company is officially incorporated, can they ratify a pre-incorporation contract?
The short answer is yes, a company can ratify a pre-incorporation contract. However, there are several factors to consider before doing so.
First and foremost, the company must ensure that the terms of the contract align with its current business objectives and legal framework. This means reviewing the agreement to verify that it is legally binding and enforceable, and that it does not conflict with any existing contracts or regulations.
Additionally, the company must have the authority to ratify the contract. This typically involves obtaining the approval of the company’s board of directors. The board must review the terms of the agreement and vote to ratify it based on the best interests of the company.
It’s also important to note that ratifying a pre-incorporation contract does not necessarily mean the company is assuming all liabilities and obligations outlined in the agreement. If the contract was signed by an individual before the company was incorporated, that individual may still be personally liable for the contract unless otherwise specified.
So why would a company choose to ratify a pre-incorporation contract? There are a few potential benefits.
For one, it can help establish a positive reputation with vendors and suppliers. By following through on a pre-incorporation contract, the company is demonstrating its commitment to honoring its agreements and maintaining strong business relationships.
Ratifying a pre-incorporation contract can also help streamline the transition to incorporation. If the company has already secured essential services or goods through a pre-incorporation contract, it can avoid delays or disruptions in its operations after incorporating.
Ultimately, whether or not to ratify a pre-incorporation contract is a decision that should be carefully considered in consultation with legal and financial advisors. By doing so, a company can ensure that it is making sound business decisions that align with its long-term goals and objectives.