Ms. Mutinta Chambe was a reporter of a company called Clay Colours Ltd, which is in the business of internal decorations. A few months before registration of the company, she signe... Ms. Mutinta Chambe was a reporter of a company called Clay Colours Ltd, which is in the business of internal decorations. A few months before registration of the company, she signed a contract on behalf of Clay Colours Ltd for the purchase of several pieces of furniture from Chambe Furniture Limited, a company in which she is a shareholder and director. After the directors of Clay Colours Limited were appointed, they refused to ratify the transaction, arguing that it was improper. You are in the administrative board of Clay Colours Limited and have been requested to advise the directors correctly before the matter becomes a potential litigation risk. Prepare the legal opinion, making reference to case law and relevant provisions of the Company Act of 2017.
Understand the Problem
The question involves a scenario regarding a legal matter related to company transactions and the responsibilities of directors and legal advisers in a corporate context.
Answer
Directors should assess ratifying the pre-incorporation contract, considering fiduciary duties and conflicts of interest.
Considering the Company Act of 2017 and relevant case law, Ms. Chambe acted as a promoter who cannot bind the company after incorporation without proper ratification. The directors should consider if ratification aligns with the company's best interests and fiduciary duties, particularly given the conflict of interest.
Answer for screen readers
Considering the Company Act of 2017 and relevant case law, Ms. Chambe acted as a promoter who cannot bind the company after incorporation without proper ratification. The directors should consider if ratification aligns with the company's best interests and fiduciary duties, particularly given the conflict of interest.
More Information
Ms. Chambe, acting as a promoter, signed a pre-incorporation contract, a common area of company law involving issues of authority and fiduciary duty. Without ratification, the company is generally not bound by such contracts.
Tips
A common mistake is assuming the company is automatically bound by pre-incorporation contracts. Ensure proper ratification is considered.
Sources
- Pre-Incorporation Contracts and Promoters - informit.com
- Fiduciary Duties of Directors under Company Law - lawteacher.net
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