2. A land is to be purchased & registry of that Land will be in the name of the proposed company.
3. Payment for purchase of Land is being made by the Promoters of the Company in THEIR OWN A/C (Personal Saving Account of Promoter)
4. Thus, Land is RECEIVED by the company against the payment by the promoter.. So, the Company will ALLOT SHARE FOR CONSIDERATION OTHERTHAN CASH (after incorporation) to those promoters who paid for the land.
Query on above :
1. Is it in order ?
2. If yes, then which documents / agreements has to be executed? n also provide the formate of the same.
3. If No, then what is wrong points in this procedure ? & whether the route of ratification of pre-incorporation contract wid third parties can be adopted in above case?
4. If the route of ratification of pre-incorporation contract wid third parties can be adopted in above case, then please tell me the steps for the same & also the format of pre-incorporation contract......
25 March 2010
I believe the above is not in order. For registration of land in favour of the company, the registrar will demand PAN of the company, copy of the board resolution and other documents which can be generated only once the company is incorporated.
As regards the law of pre-incorporation contracts is concerned, I will try to summarise the law as under:
It is a contract which purports to be made by or on behalf a company at a time when the company has not been formed.
In India, Under the provisions of s.19(e) of the specific Relief Act,1963,specific performance may be enforced against a company where its promoters have before incorporation entered into contract for the company and that the company have accepted the contract after its incorporation and communicated such acceptance to the other party to the contract.
There are other nitty gritties in the pre-inc contracts issue but i feel for your query, the above would suffice.
For land of value below Rs. 5 Lacs, there is no need of PAN number.. & Registrar is agreed if we submit pre-incorporation contact agreement instead of board resolution.. so the land registration is quite possible..
on the other hand, Specific Relief Act 1963 specifically allows to the promoter to enter in contract for the proposed company.. the land to be acquired is for the company..
So, in both the points, it is quite valid i think..
10 August 2024
### Addressing Your Queries on Pre-Incorporation Contracts and Allotment of Shares for Consideration Other Than Cash
Incorporating a company and dealing with pre-incorporation contracts can be complex. Here’s a detailed look at your queries and the processes involved:
#### 1. **Is it in order to purchase land with payment made by promoters and then allot shares for consideration other than cash?**
Yes, it is permissible, but there are specific guidelines and processes that must be followed:
- **Pre-Incorporation Contract:** Since the company is not yet incorporated, the transaction with the land purchase is a pre-incorporation contract. This contract must be ratified by the company once it is incorporated. - **Allotment of Shares for Consideration Other Than Cash:** After the company is incorporated, it can issue shares for consideration other than cash (in this case, land). The value of the land must be determined, and the allotment should be done in compliance with the Companies Act, 2013.
#### 2. **Documents/Agreements to be Executed**
You need to prepare and execute several documents:
- **Pre-Incorporation Contract:** This document outlines the agreement between the promoters and the company regarding the acquisition of land. - **Agreement for Allotment of Shares:** This document details the terms under which the shares will be allotted to the promoters in exchange for the land.
**Formats:**
**Pre-Incorporation Contract:**
``` **Pre-Incorporation Agreement**
This Agreement is made on [Date] between:
1. **Promoters' Names and Addresses** (hereinafter referred to as "Promoters") 2. **Proposed Company Name and Address** (hereinafter referred to as "Company")
**Recitals:**
1. The Promoters are in the process of incorporating the Company. 2. The Promoters have agreed to purchase land located at [Address] (hereinafter referred to as "Land") for the Company. 3. The Promoters have paid [Amount] for the Land from their personal accounts.
**Agreement:**
1. **Purchase of Land:** The Promoters agree to purchase the Land and hold it for the benefit of the Company. 2. **Payment:** Payment of [Amount] made by Promoters shall be treated as consideration for shares to be allotted by the Company. 3. **Ratification:** Upon incorporation, the Company agrees to ratify this agreement and issue shares to the Promoters in consideration of the Land.
**Agreement for Allotment of Shares for Consideration Other Than Cash:**
``` **Agreement for Allotment of Shares**
This Agreement is made on [Date] between:
1. **Company Name and Address** (hereinafter referred to as "Company") 2. **Promoters' Names and Addresses** (hereinafter referred to as "Promoters")
**Recitals:**
1. The Company has been incorporated on [Incorporation Date]. 2. The Promoters had purchased Land valued at [Value] for the Company prior to its incorporation.
**Agreement:**
1. **Allotment of Shares:** The Company agrees to allot [Number] shares to the Promoters in consideration of the Land. 2. **Value of Land:** The Land is valued at [Value], and shares are allotted at a price of [Price per Share]. 3. **Payment:** The value of Land will be treated as payment for the shares allotted.
**Signatures:**
Director 1: ______________________ Director 2: ______________________
Date: [Date] ```
#### 3. **What is wrong with this procedure?**
- **Pre-Incorporation Contracts:** Such contracts can be ratified after incorporation, but they need to be formally ratified by the newly incorporated company. - **Valuation of Assets:** Ensure that the land's value is accurately assessed and documented. - **Documentation Compliance:** Ensure that all documents comply with the Companies Act, 2013, and other relevant regulations.
#### 4. **Steps for Ratification of Pre-Incorporation Contracts**
1. **Incorporation of the Company:** Complete the incorporation process. 2. **Board Resolution:** The board of directors should pass a resolution ratifying the pre-incorporation contract. 3. **File Necessary Forms:** File the relevant forms with the Registrar of Companies (RoC) as required under the Companies Act.
**Format for Ratification Resolution:**
``` **Board Resolution for Ratification of Pre-Incorporation Contract**
Date: [Date]
Resolved that the Board of Directors of the Company ratifies the Pre-Incorporation Agreement dated [Date], wherein the Promoters purchased land for the Company.
Resolved further that the Company will allot [Number] shares to the Promoters in consideration of the Land.
**Directors' Signatures:**
Director 1: ______________________ Director 2: ______________________ ```
### Summary
- **Pre-Incorporation Contract:** Allowed and must be ratified by the company after incorporation. - **Allotment of Shares for Consideration Other Than Cash:** Permissible after incorporation, following proper valuation and documentation. - **Documents Needed:** Pre-Incorporation Contract, Agreement for Allotment of Shares, Board Resolution.
Ensure all processes comply with legal and regulatory requirements to avoid future complications.
CAclubindia
