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Law of Companies in Hong Kong, Fourth Edition, 2023
Chapter 4: PRE-INCORPORATION CONTRACTS
1. Introduction
4.001
Pre-incorporation contracts. Pre-incorporation contracts are contracts purportedly
entered into in the company’s name or on behalf of a company before the company is
incorporated. Pre-incorporation contracts can often be commercially imperative. To
ensure the viability of the proposed company’s business, it is often desirable to
acquire rights, assets or capital on behalf of the company before its incorporation.
1 Pre-incorporation contracts are entered into, for example, to enable the proposed
company to start business immediately after its incorporation
2 or to take advantage of profitable deal opportunities.
3 Pre-incorporation contract issues can also arise where the company wishes to
manage its tax liability through a ratification of loss-making contracts made by the
firm’s business before its incorporation.
4.002
Pre-incorporation contracts primarily governed by Companies Ordinance
(Cap. 622 ). In Hong Kong, pre-incorporation contracts are governed by Companies
Ordinance (Cap. 622 ), s. 122 . This provision is derived from s.32A of the predecessor
of Cap. 622 ,
5 which was enacted in 1984. While the wording in s.122 has been altered from that of
predecessor CO, s.32A, the basic rules provided under that s.32A have been retained.
Section 122 is substantially similar to s.51 of the United Kingdom’s Companies Act
2006. Before the enactment of the statutory provision, disputes arising from pre-
incorporation transactions were settled according to common law rules. It is necessary
to consider the common law rules before the effect of the statutory provision, as the
former is still relevant.
4.003
Common law rules on pre-incorporation contracts still relevant. The statutory
provision on pre-incorporation contracts is better appreciated with an understanding
of the pre-existing common law rules. The courts may find it necessary to reinforce
their decisions reached through an application of the statutory provision with a
conclusion drawn from an application of the common law rules.
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6 Moreover, cases falling outside the scope of the statutory provision may need to be
decided through an application of the common law rules.
1.
Law Reform Commission Victoria, Report No.8, Pre-Incorporation Contracts (1979) 8.
2.
An empirical study on pre-incorporation contracts conducted in Jingning county, Zhejiang province in
China shows that promoters of small hydroelectric companies have all undertaken certain pre-
incorporation activities, such as geological exploration, feasibility studies, acquisition of land use rights,
compensation for loss of crops: Z Tong (ed.), Gongsifa Fali Yu Shizheng (Principles and Practice of
Company Law) (People Court Press 2003) 13.
3.
K Heinemann, Pre-incorporation Transactions (Carl Heymanns Verlag KG 1990) 74.
4.
As was in Case No D7/89, IRB of R Dec 185 (W. Turnbull, D. P.H. Chan and A. Halkyard) [1989] HKLY 1029.
5.
As to the predecessor Companies Ordinance (Cap. 32 ), see paras.1.108 and 1.166 in Chapter 1.
6.
An example is Quah Poh Hoe Peter v Probo Pacific Leading Pte Ltd [1993] 1 SLR 14, where the court
sought to cement its decision on the personal liability of the person who purported to enter into the
relevant contract on behalf of a company that had not been incorporated at the time of the action
through an application of s.41 of Singapore’s Companies Act (Cap. 50 1990 Ed) with a consideration of
the effect of Kelner v Baxter (1866) LR 2 CP 174, Black v Smallwood [1966] ALR 744, and Summergreen
v Parker (1950) 80 CLR 304.
7.
Cotronic (UK) Ltd v Dezonie (t/a Wendaland Builders Ltd) [1991] BCC 200 ; Badgerhill Properties Ltd v
Cottrell [1991] BCC 463 .
