How far contracts entered into by a company before the commencement of business are binding on the company?

A company cannot be bound by a contract which was made on its behalf by any Person (including a
promoter) before the company itself had been formed. At the time when the contract is made, the company is non-existent, it cannot after its formation ratify a contract to which it could not have been a party when the contract was made [Kenner v Baxter (1866)].

In Kenner's case goods had been ordered for the company's business before the company was formed.
But the company is not bound by a contract merely because it later performs it, e. g. by accepting the
goods or services. The company will, of course be liable if it makes a fresh contract after the company is formed; but there must be clear evidence that it intended to do so.

ln the circumstances, the simplest and safest course for a promoter is to bring the negotiations to the
point of agreement but to postpone any binding contract until the company is formed and can enter
into the contract for itself. However, if it is essential to some formula of assignment or notation to be
made after incorporation and when it does so, or if it does not do so within a specified time, he is then
to be released.