Accounting Treatments for identifiable intangible assets
“ Section 131 of the corporations act 2001 has changed the common law in respect of pre-Registration contracts “.
Explain the common law view of pre-registration contracts and then explain how section 131 has changed the common law.
Then analyse and discuss the effect of section 131 and 132 in respect of the rights and obligations of promoters, companies and third parties.
Your answer should make reference to the relevant cases as well as considering the legislative intention of the section.
The central focus of this essay will be on the legal principle of pre-registration contracts. As the definition of pre-registration contracts ( in legal terms) suggests, they are the kind of contracts that are intentionally entered into, on the behalf of a company that is not yet registered. In pre-registration contracts, a person that enters into an agreement on the behalf of an unincorporated company, is known as a promoter. A promoter is the person who intends to or will generate profit from the formation or the financing as a company. This means that if a pre-registered company enters into a contract, the promoter is entitled to the benefits and incur personal liability from that contract. Therefore, this has led to the introduction of Section 131 of the corporations act. This provides a different and modern view of pre-registration contracts compared to its common law definition. Accordingly, this will lead to a discussion of the common law view of pre-registration contracts and the definition that is provided by Section 131. A large emphasis will also be placed on the role of promoters and companies as well as third parties that are involved in this particular area of law. Pre-registration contracts are now highly uncommon, due to the consequences involved, as this essay will reveal.
According to the common law, if a company is not registered, then it is not recognized as a legal entity. This resulted in the common law rule stating that a company cannot be able to enter into a binding contract prior to them being registered by the ASIC (Australian Securities and Investment Commission) as outlined by Lipton and Herzberg (2001, p.141). Under the common law, it meant that a person was not legally permitted to bind contracts under a company name in the hope that the company would actually be registered. It caused the common law to believe that an unincorporated company is not bound by a contract as a result of an agreement being made between them and an opposing party. Furthermore, Lipton and Herzberg (2001, p.141) indicate that a person who has entered into a contract for a company, prior to it being incorporated, could be personally bound by that contract, only if they had the intention to be contracted as a principal. Therefore, a separate legal entity does not exist and there will be no capacity to enter into contracts at all. Under the common law, if opposing parties intend to enter into a contract with an unincorporated [next page]