• Ratification by the company: Any contract or other transaction purported to be entered into by a company prior to its formation, or by any person on behalf of the company before its formation, may be ratified by the company after its formation. Upon ratification, the company assumes rights and liabilities under the contract or transaction as if it had been in existence at the date of such contract or transaction and had been a party to it.
• Legal position of the promoter: Before ratification, the promoter or any other person purporting to act on behalf of the company remains personally liable in the absence of any express agreement to the contrary. The promoter is also entitled to any benefit accruing under the contract or transaction.
• Avoiding personal liability: If the promoter does not wish to incur financial or other liabilities under such contracts, they should ensure that the contract is drawn up to permit abrogation in the event of the company failing to ratify it after its formation.
• Non-existent principal: The reason the promoter cannot be regarded as an agent in respect of the pre-incorporation contract or transactions derives from the general legal principle that a person cannot derive the powers and authority of an agent of a non-existent principal.

[Any 4 points at 2.5 marks each for a total of 10 marks]