Certificate of Incorporation and Pre-Incorporation contracts

Certificate of incorporation:

A company in order to commence business must obtain a certificate of incorporation. Such certificate is issued by the registrar of companies on submission of mandatory documents such as the copy of the memorandum of association duly attested, statement of the willingness of the directors to act as directors and that they have paid up all the money on shares held by them.

A private company would need a certificate of incorporation to commence business, whereas a public limited company would need a certificate of incorporation as well as a certificate of commencement of business to start the business. It is a must to obtain such certificate. Following are the particulars needed to obtain certificate of commencement of business:

1) Shares payable in cash must have been allotted up to the amount of minimum subscription.

2) Directors must have paid in cash the application and allotment money on the shares taken by them.

3) No money should have become refundable for failure to obtain permission for shares to be dealt in a stock exchange.

A certificate of incorporation is conclusive evidence that the company is incorporated. Any mistake in the facts presented shall not make the certificate of incorporation invalid. A certificate of incorporation once issued is always issued. In this particular case the memorandum was signed by an adult and he had also forged the signatures of other members who were minors. The registrar had not noticed this and had issued the certificate of incorporation. Later such certificate cannot be revoked as it is conclusive evidence and once it’s given it’s given.

A company must obtain a fresh certificate each time it commences business that’s not mentioned in its object clause or commences a business that’s not germane to its current business. In this case it is a must that the share holders must pass a special resolution and in case only ordinary resolution has been passed the central government must approve it.

Pre incorporation contracts

Any contact which is entered into by the company before incorporation is called pre incorporation contracts. Such contracts do not bind the company or the outsiders who have entered into such contracts with the company. Only the promoters who have entered into such contracts before incorporation can be held liable for it and not the company. A company can enforce a pre incorporation contract on a later date if such contract is within its objects mentioned in the object clause in the memorandum of association.

Eg: The promoters of a hotel business purchased wine from a dealer before the company was incorporated. But such company went into liquidation before incorporation. It was held that the dealer need not suffer for the fact that the company was not incorporated as the promoters are personally liable for pre incorporation contracts.

You could test your understanding by answering the following multiple choice questions:

1) Is the company bound by contracts entered into before obtaining certificate of incorporation?
a) Yes
b) No

2) There is no requirement to submit a copy of the memorandum of association for obtaining the certificate of incorp.
a) True.
b) False.

3) Statement of directors , that they are willing to act as directors has to be submitted to the registrar of companies to obtain the certificate of incorporation.

a) True.
B) False.


4) A private company needs certificate of commencement of business.
a) True.
b) False.

5) Obtaining certificate of incorporation is optional.
a) True.
b) False.

6) A company can enforce pre incorporation contracts later.
a) True.
b) False.

7) What document has to be obtained every time a company commences a new business or a business that is not germane to its objects in the object clause.
a) Memorandum of association.
b) Articles of association.
c) Non polluting certificate.
d) Certificate of incorporation.

Answer key
1) b
2) b
3) a
4) b
5) b
6) a
7) d


Reading through the above given notes would explain as to why a particular choice is the right answer.