What are the Effects of Pre-Incorporation Contracts under Nigerian Law?

Suppose a group of entrepreneurs intends to open a chain of fast food restaurants across Lagos. They have identified a suitable property in Victoria Island, negotiated terms with the landlord, and need to sign a lease. There is one problem: their company has not yet been incorporated. The Corporate Affairs Commission has not yet issued a certificate. In law, the company does not exist. Can they sign the lease on behalf of the company? If they do, will the company be bound by it once it is incorporated? And if the landlord later disputes the lease, who can he sue?

These questions lie at the heart of the law on pre-incorporation contracts, one of the most practically significant topics in Nigerian company law. The law in this area underwent a fundamental change with the enactment of the Companies and Allied Matters Act 1990, and that change has been carried forward and refined in CAMA 2020. Understanding both the old common law position and the current statutory regime under section 96 of CAMA 2020 is essential for any law student or practitioner.

What Is a Pre-Incorporation Contract?

A pre-incorporation contract is any agreement entered into on behalf of a company before that company has been duly incorporated. It typically arises because the promoters of a proposed company wish to make commercial arrangements in anticipation of the company’s existence: securing premises, engaging employees, purchasing equipment, entering supply agreements, or obtaining licences. The commercial logic is obvious: waiting until after incorporation to make every arrangement would mean losing valuable time and opportunities. The legal problem, however, is equally obvious: a company that does not yet exist cannot be a party to a contract.¹

The issue is directly linked to the concept of corporate personality in Nigerian law. A company acquires legal personality only upon incorporation.² Before that moment, it is not a legal person. It cannot own property, enter contracts, sue, or be sued. Any contract purported to be made in its name before that moment faces a fundamental difficulty: one of the parties to the contract did not legally exist when the contract was made.

The Common Law Position: Kelner v Baxter

The common law approach to pre-incorporation contracts was strict and, to many observers, unduly harsh. Its foundational statement is found in the English case of Kelner v Baxter.³

In that case, the promoters of a proposed company signed a contract to purchase wine on behalf of “the Gravesend Royal Alexandra Hotel Company Limited,” a company that had not yet been incorporated. The company was subsequently incorporated but almost immediately went into insolvent liquidation. The question before the court was whether the promoters who had signed the contract were personally liable on it.

Erle CJ, drawing on the law of agency, held that where a person purports to contract as agent for a principal that does not exist, there can be no principal, no agency, and therefore no contract binding on the non-existent principal. Since the company did not exist at the time of signing, it could not have been a principal; and since it could not ratify after incorporation a contract purportedly made on its behalf before it existed, the promoters who signed were personally liable on the contract.⁴

The logic of this rule flows from a fundamental principle of the law of agency: ratification is only possible where the alleged principal existed at the time of the original act.⁵ A company incorporated after the date of a pre-incorporation contract cannot retrospectively become a party to that contract through ratification, because it was not in existence at the relevant time.

Newborne v Sensolid: A Harsher Outcome

The harshness of the common law position was illustrated even more starkly in Newborne v Sensolid (Great Britain) Ltd.⁶ In that case, a promoter named Leopold Newborne was in the process of forming a company called Leopold Newborne (London) Ltd. Before the company was incorporated, he signed a contract for the sale of goods in the company’s name, with his own signature appearing beneath the company name in the manner of a director signing on behalf of his company. When the buyer refused to take delivery and the market fell, Newborne sought to enforce the contract.

The Court of Appeal held that the contract was a nullity. Unlike in Kelner v Baxter, where the promoters had signed as agents of the proposed company and were therefore personally liable, Newborne had signed as the company itself, not as an agent. Since the company did not exist, the contract had no party on one side and was therefore void and unenforceable by anyone, including Newborne personally.

The distinction drawn between Kelner v Baxter and Newborne v Sensolid creates a difficult tension. Whether a pre-incorporation contract is enforceable against the promoter personally depends on the technical form in which the promoter signed, a distinction that serves no obvious commercial purpose and that leaves third parties in a state of considerable uncertainty.⁷

The Nigerian Common Law Position Before 1990

Nigerian courts applied the common law position before the statutory intervention of 1990. In Caligara v Giovanni Sartori & Co Ltd,⁸ the court held that a contract entered into by a promoter on behalf of a proposed company before its incorporation was not binding on the company and could not be ratified after incorporation. In Transbridge Co Ltd v Survey International Ltd,⁹ the Supreme Court affirmed the same principle through the dictum of Uwais JSC, holding that a pre-incorporation contract is a nullity and that neither the company when formed nor the promoter can sue or be sued on it, unless the promoter personally bound himself. Similarly, in Moukarim Metal Wood Factory Ltd v Durojaye,¹⁰ the court held that where a promoter signed in the name of the unincorporated company rather than as its agent, the contract was unenforceable by anyone.

These cases illustrate the practical injustice of the common law rule. Third parties who dealt with promoters in good faith, expecting the company to take over the arrangements on incorporation, were left without recourse against the company. Promoters who had acted entirely reasonably found themselves personally liable on contracts they had never intended to bear personally. And companies that had benefited from pre-incorporation arrangements could nonetheless repudiate them with impunity.

The Statutory Reform: Section 96 of CAMA 2020

The statutory intervention that reformed this unsatisfactory position was introduced for the first time in Nigerian law by section 72 of the Companies and Allied Matters Act 1990. That provision has been carried forward, substantially unchanged, as section 96 of CAMA 2020.¹¹ Its effect is to fundamentally alter the common law position in three important respects.

Section 96(1): Promoter Liability Before Ratification

Section 96(1) of CAMA 2020 provides that any contract or other transaction purporting to be entered into by a company prior to its formation, or by any person on behalf of a company prior to its formation, may be ratified by the company after its formation, and thereupon the company shall be bound by it and entitled to the benefit thereof as if it had been in existence at the date of the contract or other transaction and had been a party thereto.¹²

This provision makes three things clear. First, a pre-incorporation contract is not automatically void. It is capable of becoming binding if the company ratifies it after incorporation. Second, upon ratification, the company becomes bound by the contract and entitled to its benefits as if it had been a party from the outset. This retrospective operation is a significant departure from the common law, which held that no amount of post-incorporation conduct could make the company a party to a pre-incorporation agreement. Third, the company’s right to ratify is discretionary: section 96(1) says the contract “may be ratified,” not that it must be. Whether and when to ratify is a decision for the company’s management after incorporation.¹³

Section 96(2): Continued Personal Liability of the Promoter

Section 96(2) provides that unless and until the contract is adopted or ratified by the company, the person who purported to act in the name of or on behalf of the company is personally bound by the contract and entitled to its benefits.¹⁴

This provision preserves personal liability for the promoter during the period between the making of the pre-incorporation contract and any subsequent ratification by the company. It protects third parties: a counterparty who enters a pre-incorporation contract is not left without any enforceable obligation against anyone. The promoter remains on the hook until the company decides whether to take over the contract.

This is a marked improvement on the inconsistency created by the Kelner v Baxter and Newborne distinction. Under section 96(2), regardless of the technical form of signing, if a person acts on behalf of a proposed company before incorporation, that person is personally bound.

Section 96(3): Release of the Promoter Upon Ratification

Section 96(3) provides that where the company ratifies the contract, the liability of the promoter is extinguished unless otherwise agreed.¹⁵ Once the company takes over the contract, the promoter is released from personal liability, and the company steps into his shoes. The third party’s only recourse is then against the company.

This three-part structure, personal liability pending ratification, automatic release on ratification, and full corporate liability after ratification, creates a coherent and commercially workable framework that the common law entirely failed to provide.

Gaps and Criticisms of Section 96

Despite the significant improvement that section 96 represents over the common law, academic commentary has identified several important gaps in the provision.

No Timeframe for Ratification

Section 96 does not specify the period within which the company must decide whether to ratify a pre-incorporation contract. The absence of a defined timeframe creates uncertainty. A company could theoretically delay ratification indefinitely, leaving the promoter exposed to personal liability and the third party in a state of commercial limbo. In comparative jurisdictions such as South Africa, statute specifies a reasonable time within which the company must elect to ratify or reject the contract.¹⁶ Nigerian law has not yet adopted this approach, and in the absence of a stipulated period, the courts would have to consider what constitutes a reasonable time on the facts of each case.

No Remedy for the Promoter Against the Company

Section 96 makes the promoter personally liable pending ratification but provides no mechanism by which the promoter can compel the company to ratify or to indemnify him for liabilities incurred under the pre-incorporation contract. If the company elects not to ratify, the promoter remains personally liable on the contract with no statutory right of contribution or indemnity from the company.¹⁷ This asymmetry has been criticised as commercially unjust, particularly where the company has benefited from the arrangements made under the pre-incorporation contract without taking over the contractual obligations.

Company Must Be Reasonably Identifiable

An additional practical requirement, though not expressly stated in section 96, is that the company that ratifies must be reasonably identifiable as the company referred to in the pre-incorporation contract. Where a promoter contracts in the name of “XYZ Nigeria Limited” but the company eventually incorporated is “XYZ Ventures Nigeria Limited,” there is a question whether the ratification by the latter company satisfies the requirements of section 96.¹⁸ Courts would need to be satisfied that the incorporated company is the same entity that was contemplated at the time of contracting.

The Relationship Between Section 96 and the Common Law

Section 96 of CAMA 2020 is remedial legislation: it was enacted to correct the injustice of the common law rule established in Kelner v Baxter.¹⁹ As such, its provisions prevail over the common law to the extent of any inconsistency. Nigerian courts have confirmed that where section 96 applies, the common law rule in Kelner v Baxter does not override the statutory provision.²⁰

However, the common law rule is not entirely displaced. Where section 96 does not apply, for example where the contract was not made on behalf of the company but purely in the promoter’s personal capacity with a secret intention to transfer to the company later, the common law analysis remains relevant.²¹ And in jurisdictions outside Nigeria or in cross-border transactions where CAMA 2020 may not apply, the Kelner v Baxter rule may still determine liability.²²

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CAMA 2020 Highlight: What Changed on Pre-Incorporation Contracts

The common law position (before 1990 in Nigeria): A pre-incorporation contract was a nullity. The company could not ratify it after incorporation. The promoter might or might not be personally liable, depending on the form of the signature (Kelner v Baxter versus Newborne v Sensolid). Third parties could be left with no one to sue.

The position under CAMA 2020, section 96 (carried forward from section 72 of CAMA 1990):

• A pre-incorporation contract is not void. It is capable of ratification.
• The promoter is personally liable and entitled to the benefits of the contract pending ratification (section 96(2)).
• If the company ratifies after incorporation, the company becomes bound and entitled as if it had been in existence at the date of contracting (section 96(1)).
• Upon ratification, the promoter is released from personal liability unless otherwise agreed (section 96(3)).

What CAMA 2020 did not change from CAMA 1990: The text of section 96 is substantially identical to section 72 of the old Act. The 2020 reform did not address the main criticisms of the provision: the absence of a timeframe for ratification, and the absence of any remedy for the promoter against the company where the company declines to ratify.

Practical implication for students: In problem questions, always start by asking whether the contract was entered before or after incorporation. If before: apply section 96. Identify whether ratification has occurred. If yes, the company is bound. If no, the promoter is personally liable. If the facts show the contract was made in the company’s name with the promoter merely signing beneath (the Newborne fact pattern), note that under section 96(2), personal liability attaches regardless of the form of signature.

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Footnotes

¹ J Olakunle Orojo, Company Law and Practice in Nigeria (4th edn, Mbeyi & Associates 1992) 45.

² Companies and Allied Matters Act 2020 (CAMA 2020), s 42; Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 (HL).

³ Kelner v Baxter (1866) LR 2 CP 174, per Erle CJ.

⁴ ibid; E Ojo, ‘Pre-Incorporation Contracts in Nigeria: The Need for Progressive, Expansive, and Reformative Interpretation of Section 96 of CAMA 2020’ (2021) 43(6) Manitoba Law Journal 205, 208.

⁵ Keighley Maxted & Co v Durant [1901] AC 240 (HL); Ojo (n 4) 209.

⁶ Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45 (CA), per Lord Goddard CJ.

⁷ Ojo (n 4) 210.

⁸ Caligara v Giovanni Sartori & Co Ltd (1961) 1 All NLR 534.

⁹ Transbridge Co Ltd v Survey International Ltd [1986] 4 NWLR (Pt 38) 576 (SC), per Uwais JSC.

¹⁰ Moukarim Metal Wood Factory Ltd v Durojaye [1976] 1 ALR Comm 278.

¹¹ CAMA 2020, s 96; Companies and Allied Matters Act 1990 (CAMA 1990), s 72; LawGlobal Hub, ‘Before the Company Is Born: Pre-Incorporation Contracts Under CAMA 2020’ (LawGlobal Hub, July 2025).

¹² CAMA 2020, s 96(1).

¹³ Orojo (n 1) 47; Ojo (n 4) 215.

¹⁴ CAMA 2020, s 96(2); LawGlobal Hub (n 11).

¹⁵ CAMA 2020, s 96(3).

¹⁶ Ojo (n 4) 220; Companies Act 71 of 2008 (South Africa), s 21.

¹⁷ Ojo (n 4) 218; A Nduka-Eze, ‘Company Promoters and Pre-Incorporation Contracts: Delimiting the Boundaries of Liability Under Nigerian Law’ (2021) 7(5) Law Journals 572, 575.

¹⁸ Ojo (n 4) 219.

¹⁹ Nduka-Eze (n 17) 572; cjokoyelawview.com, ‘Topic 15: Pre-Incorporation Contracts Under CAMA’ (CJ Okoye Law View, 2021).

²⁰ Helar Law, ‘Corporate Law Practice: Pre-Incorporation Contracts’ (Helar, 2023).

²¹ Nduka-Eze (n 17) 574.

²² Ojo (n 4) 221.