In the name of the company : an analysis of the provision and effect of section 21 of the Companies Act 71 of 2008

Abstract

A company acquires a legal personality upon incorporation and registration, before which it does not have the required capacity to enter into a valid contract. However, the promoter of a company may have to enter into an agreement on behalf of, or for the benefit of the company to be formed, either for the incorporation or for the future business of the company. Such a pre-incorporation contract often becomes a source of trouble and causes dispute over the validity or the legal consequences of the contract.

Laws in common law jurisdictions and civil law jurisdictions make various provisions for pre-incorporation contracts. Ratification by the company, once formed, of the pre-incorporation contract made by the promoter, is possible in some jurisdictions but not in the others. Third parties that enter into the pre-incorporation contract also face different scenarios in different jurisdictions.

This mini dissertation analyses the South African law that governs the pre-incorporation contracts, and compares it with the laws of a few common law and civil law jurisdictions, particularly that of China. The purpose of the study is to examine the effect and legal consequence of the pre-incorporation contract in South Africa and China, and to evaluate whether the law of South Africa provides sufficient certainty and protection to the parties involved in the pre-incorporation contract compared with that of China.