Sales before incorporation of comapnay

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saikiran (Querist)
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06 August 2012 Dear experts,

Company has incorporated in April 2011 but it has started commercial operations from Dec 2010 onwards. It has raised invoice for the services provided from Dec 2010 to March 2011 to the customers.

Nature of industry of the company is Service Industry.

Please tel me what will be the legal implications in this regard?

Also suggest the accounting treatment for the profit earned and income received during the pre incorporation period?

Ajay Mishra

Ajay Mishra (Expert)
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06 August 2012 Hi

Preliminary contracts are contracts purported to be made on behalf of the company before its incorporation. Before incorporation, a company is not in existent and has no capacity to contract.

Consequently, nobody can contract as agent on its behalf because an act which can be done by the principal himself can not be done by him through an agent. In {Kelner v. Baxter (1866) L.R. 2 C.P. 174} it was held that a pre incorporation contract can not be retified by th company after incorporation.

saikiran

saikiran (Querist)
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06 August 2012 Dear Ajay Mishra,

Thanks a lot for our valuable reply.
The company has given services without any contract before incorporation. After the incorporation only company has entered into the contract and continued given services.

Only thing is that company has raised an invoice for the period before incorporation.

In the above circumstances please tell me what are the consequences?

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