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Ing to the Indian Contract Act, 1872, pre-incorporation contracts are not valid as for the formation of any contract there should be two parties and in the case of a pre-incorporation contract, the company is not incorporated at the time of agreement.

Promoters are generally held personally liable for pre-incorporation contract. If a company does not ratify or adopt a pre-incorporation contract under the Specific Relief Act, then the common law principle would be applicable and the promoter will be liable for breach of contract.

"A pre-corporation contract is one which is entered into when the Company is in the process of being incorporated but is not yet completed it. At common law such contracts were held to be void, as the Company is not yet in existence."

Before a company is incorporated, it has no legal existence. ingly, it has no capacity to enter into a contract. The company cannot sue or be sued on a pre-incorporation contract. However, persons who conclude contracts for the unborn company can be held personally liable on such contracts.

(5) Misrepresentation in the Prospectus: A promoter is liable for any untrue statement in the prospectus to a person who has subscribed for any shares or debentures on the faith of the prospectus. Such a person may sue the promoter for compensation for any loss or damage sustained by him (Section 35).

This is because a preliminary contract are signed before the incorporation of a company. These are contracts which the promoter undertakes with the third party during the company's promotion. Thus, the company cannot ratify preliminary contracts after incorporation and cannot also be forced to honour these contracts.