Starting a business often involves finding the perfect locationâwhether it’s a small office, retail space, or manufacturing unit. But what happens if you havenât yet registered your company? Can you still buy or lease property?
The short answer: Yes, you canâbut there are some legal and practical caveats you must understand.
đ Pre-Incorporation Contracts: The Legal Foundation
Under Sri Lankaâs Companies Act No. 07 of 2007, business founders can enter into what are called pre-incorporation contracts.
Whatâs a Pre-Incorporation Contract?
A pre-incorporation contract is any agreement:
- Made in the name of a company before it legally exists, or
- Entered into on behalf of the company, in anticipation of it being registered.
These contracts can cover things like:
- Leasing commercial space
- Buying property
- Hiring employees
- Ordering equipment
đ Scenario 1: Renting a Property Before Company Registration
Youâre opening a boutique clothing store in Colombo. You find the perfect location and want to lock it in before someone else takes it. But your company, LuxeStyle (Pvt) Ltd., hasnât been registered yet.
Can you sign the lease now?
â Yes, with conditions:
- Sign the lease as an individual, noting that it’s on behalf of the soon-to-be-formed LuxeStyle (Pvt) Ltd.
- Include a clause that the lease is subject to ratification by the company once incorporated.
- After registration, the company must officially ratify (approve) the lease.
đ§ Important:
If your company never gets registered or fails to ratify the lease, you are personally liable for the rent.
đĄ Scenario 2: Buying Property in the Name of the Company
Letâs say you’re investing in land to build a factory for GreenTech Manufacturing Ltd., which hasn’t been incorporated yet.
Can you buy the property now?
â
Yes, but not in the companyâs name (yet).
Since the company doesnât legally exist, you can’t register the property directly under its name. But you can:
- Enter a Sale Agreement as a promoter/founder, clearly stating:
- You’re buying the land on behalf of the company.
- The contract will be ratified by the company upon incorporation.
- Once the company is registered, the board can ratify the purchase and transfer the title to the companyâs name.
â ď¸ Caution:
If the company is never formed or fails to ratify the deal, youâll remain the legal owner and bear full responsibility.
âď¸ What the Law Says (In Simple Terms)
Under the Companies Act No. 07 of 2007:
- Section 23 allows a company to ratify any pre-incorporation contract after it is registered.
- Section 24 places implied warranties on the person signing the contractâthat the company will be registered and will ratify the deal.
- If the company never ratifies, you can be held personally responsible.
- Section 25 allows courts to intervene if property was transferred but the contract wasnât ratified.
đ Key Takeaways for Business Owners
â Do | â Donât |
---|---|
Include a ratification clause | Sign as if the company already exists |
Use clear legal language: âon behalf of the proposed companyâ | Omit your personal name entirely |
Ratify the contract as soon as possible after incorporation | Delay incorporation for too long |
Consult a lawyer for major property deals | Assume all contracts are automatically valid |
đ Final Word
Yes, you can buy or rent property for your business before itâs officially registeredâbut you need to protect yourself legally. Always draft contracts clearly, document intent, and ratify everything as soon as your company is incorporated.
If youâre unsure how to draft or negotiate a pre-incorporation property agreement, speak to a lawyer or business consultant.