Ratification of a pre-incorporation contract is an important aspect of corporate law that is often overlooked. Pre-incorporation contracts are agreements made on behalf of a corporation that has not yet been formed. These contracts can be binding on the corporation once it is formed, but only if they are ratified by the board of directors or the shareholders.

What is Ratification?

Ratification is the act of approving, confirming, or validating something that has already been done. For example, if a pre-incorporation contract was signed on behalf of a corporation, the board of directors or the shareholders must approve the contract for it to be binding on the corporation once it is formed. This approval is known as ratification.

Ratification can be either express or implied. Express ratification is when the board of directors or the shareholders explicitly approve the pre-incorporation contract. Implied ratification is when the corporation behaves in a way that indicates that they approve of the pre-incorporation contract, such as accepting the benefits of the contract.

Why is Ratification Important?

Ratification is important because it ensures that the pre-incorporation contract is binding on the corporation once it is formed. Without ratification, the corporation could argue that they are not bound by the contract, which could result in legal disputes and financial damages.

Ratification also protects the interests of the parties to the pre-incorporation contract. If the corporation fails to ratify the contract, the other party may be left without legal recourse if the corporation does not fulfill its obligations under the contract.

How to Ratify a Pre-incorporation Contract

To ratify a pre-incorporation contract, the board of directors or the shareholders must approve the contract. This approval can be done in a number of ways, including:

1. Holding a board of directors meeting or a shareholders meeting and voting on the ratification of the contract.

2. Including a provision in the articles of incorporation that ratifies any pre-incorporation contracts that have been entered into on behalf of the corporation.

3. Implied ratification, which occurs when the corporation behaves in a manner that indicates they approve of the contract.

Conclusion

Ratification of a pre-incorporation contract is an important aspect of corporate law that should not be overlooked. Without ratification, the contract may not be binding on the corporation once it is formed, which could result in legal disputes and financial damages. To ensure that pre-incorporation contracts are binding, the board of directors or the shareholders must approve the contract through either express or implied ratification. By doing so, the interests of the parties to the contract are protected and the corporation can move forward with confidence.