🏗️ Pre-Incorporation Contracts: What Every Sri Lankan Business Owner Should Know

Thinking of launching a company in Sri Lanka? You might already be negotiating deals, signing agreements, or even buying property before your business is officially registered.

But here’s the catch: If your company isn’t incorporated yet, can you legally enter into contracts? Yes—but with important conditions.

Let’s break down what the Companies Act No. 07 of 2007 says about pre-incorporation contracts and what you, as a business owner, need to know.

📄 What is a Pre-Incorporation Contract?

A pre-incorporation contract is any agreement made before your company legally exists. It falls into two types:

1. Contracts claimed to be signed by the company before it’s incorporated.
2. Contracts made by someone (often the founder or promoter) on behalf of the future company.

🔧 Example:

You’re planning to launch VisionTech Solutions (Pvt) Ltd. You sign a lease agreement for office space before registration, using the company’s name. That’s a pre-incorporation contract.

✅ Can These Contracts Be Made Valid?

Yes! According to Section 23, a pre-incorporation contract can be ratified after the company is incorporated.

What Does “Ratify” Mean?

To ratify a contract means your newly registered company formally approves and adopts it. Once ratified, the contract becomes legally binding on the company—as if the company had signed it from the beginning.

⏰ Timing is Key:

• If the contract includes a deadline for ratification, the company must follow it.
• If not, the law allows a “reasonable time” after incorporation.

⚠️ What If You Don’t Ratify It?

If your company doesn’t ratify the contract, the person who signed it (usually you, the founder) may be personally liable.

Under Section 24, unless stated otherwise in the contract, two implied promises (warranties) are made by the person who signs:

1. That the company will be incorporated within a reasonable time.
2. That the company will ratify the contract soon after incorporation.

If these don’t happen, the signer may be sued for breach of warranty, just like the company would have been if it had failed to meet its contractual obligations.

🔁 What If the Company Later Signs the Same Contract?

Let’s say the company signs a new agreement on the same terms as the earlier one after incorporation. In this case, your personal liability is removed, even if the original contract wasn’t formally ratified.

🏢 What Happens to Property Acquired Before Incorporation?

If your company receives goods, equipment, land, or services through a pre-incorporation contract but doesn’t ratify it:

• The other party can go to court (Section 25) and request:
  • The return of the property,
  • Validation of the contract,
  • Or some other fair remedy.

This protects vendors or landlords who made deals in good faith before your company was legal.

✍️ Who Can Sign Official Company Documents?

After incorporation, only certain people can sign or authenticate official company documents (Section 26):

• A director,
• The company secretary,
• Or another authorized officer.

This ensures that all contracts, board minutes, or filings carry legal weight.

🔎 Real-World Example

You plan to start OceanGlow Cosmetics (Pvt) Ltd. and sign a supplier agreement for packaging with a local vendor.

Before incorporation:

• You’re personally responsible.
• You’re expected to ensure the company is registered soon and the deal is ratified.

After incorporation:

• You hold a board meeting and ratify the contract.
• The contract is now legally binding on the company, and you’re no longer personally liable.

📝 Business Owner’s Checklist

Here’s a practical guide before signing any pre-incorporation agreement:

🧠 Final Thoughts

Pre-incorporation contracts are a powerful tool for business owners who want to move quickly and secure opportunities early. But they come with responsibilities and risks.

The good news? With smart drafting, proper ratification, and legal awareness, you can protect both your future company and yourself.