• 12 Marks

BL – May 2018 – L1 – SB – Q4a – Company Law

Discuss the liability of shareholders for transactions entered into prior to company incorporation.

Beny Limited was incorporated six months ago. The company is in the real estate business. While preparing for incorporation, Ben and Nyom, who are now shareholders of the company, bought prime landed properties on behalf of the proposed company. They owe the vendors N100 million as the balance of the purchase price. The vendors are demanding payment.

Required:
(i) Advise Ben and Nyom on their status in the transaction. (4 Marks)
ii. Advise Beny Limited on the liability for the sum of N100 million

i. Ben and Nyom were promoters. This is because they undertook the formation of Beny Limited “with reference to a given project and set it going” by taking the necessary steps to buy landed properties for it to facilitate its business of real estate – S.61, Companies and Allied Matters Act.

ii. Beny Limited will be liable for the balance of the purchase price of N100 million if it ratifies the purchase contract which Ben and Nyom entered into on its behalf prior to its formation. However, prior to ratification by the company, Ben and Nyom who acted on behalf of the company shall be liable to pay the money and be entitled to the benefits of the property

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