Founders often sign leases, supplier agreements or hiring contracts before their Singapore company is even incorporated. It feels efficient: the deal is ready, so why wait for ACRA to issue the Unique Entity Number (UEN)? The problem is that a company which does not yet exist cannot be a party to a contract, and the person who signed “on behalf of” that future company may find themselves personally on the hook for the entire deal.
This is the territory governed by Section 41 of the Companies Act 1967, which deals specifically with contracts made before a company is incorporated. Understanding how this provision works, and how it interacts with the general law on promoters, is essential for anyone structuring a new Singapore venture, and for the corporate secretary or accountant who later has to explain why a supplier is chasing the founder personally instead of the company.
What Is a Pre-Incorporation Contract?
A pre-incorporation contract is any agreement signed in the name of, or purportedly on behalf of, a company before that company has been registered with the Accounting and Corporate Regulatory Authority (ACRA). Common examples include:
- Signing a tenancy agreement for office space “for and on behalf of [Proposed Co] Pte. Ltd.”
- Placing a purchase order with a supplier ahead of the company’s incorporation date
- Entering into an employment contract with a key hire before the entity is formed
- Committing to a shareholders’ agreement or joint venture term sheet that assumes the company already exists
At common law, a company cannot ratify a contract made before its own existence, because ratification requires that the principal (the company) existed and had capacity at the time the contract was made. Since an unincorporated company has neither, the old English position (from cases such as Kelner v Baxter) was that the person who signed the contract remained personally liable, full stop, even after the company was later incorporated.
How Section 41 of the Companies Act Changes the Position
Singapore addressed this harsh outcome through Section 41 of the Companies Act 1967, titled “Ratification by company of contracts made before incorporation”. In broad terms, Section 41 provides that:
- Any contract purporting to be made by, or on behalf of, a company at a time when the company has not yet been incorporated may be ratified by the company after it is duly incorporated, provided the ratification takes place within a reasonable time after incorporation.
- Once ratified, the company becomes bound by, and entitled to the benefit of, the contract as if it had been in existence at the date the contract was made and had been a party to it.
- Until ratification happens (or if it never happens), the person or persons who purported to act for the company remain personally bound by the contract and are personally entitled to its benefits, unless the contract expressly provides otherwise.
The practical effect is that a promoter is not automatically freed from liability the moment the company is incorporated. Ratification is a deliberate, positive step, and until the board takes it, the individual who signed remains exposed.
What Counts as “Ratification”
Ratification is usually done by way of a board resolution shortly after incorporation, formally adopting the pre-incorporation contract and confirming that the company accepts its rights and obligations under it. Good practice is to:
- List every pre-incorporation contract or commitment in the first board minutes
- Pass an express resolution ratifying each one (a general “we ratify everything the promoters did” clause is weaker than naming the actual agreements)
- Notify the counterparty in writing that the company has ratified the contract and now stands in the promoter’s shoes
- Where the counterparty is willing, execute a short novation or assignment agreement so there is no ambiguity about who the contracting party now is
This is one of the items a new company’s first board resolutions and incorporation paperwork should always capture. If your company has just been incorporated and there are outstanding pre-incorporation contracts to formalise, this is best done as part of the same exercise as appointing your first company secretary and adopting your constitution.
What Happens If the Company Never Ratifies?
If the company chooses not to ratify, or simply never gets around to it, the promoter remains personally liable on the contract indefinitely, not just for a grace period. This has real consequences:
| Scenario | Legal Position |
|---|---|
| Company ratifies within a reasonable time | Company is bound and benefits as if it had contracted from the outset; promoter is generally released, subject to the contract’s own terms |
| Company delays ratification beyond a reasonable time | Ratification may be ineffective; counterparty may treat the promoter as the only contracting party |
| Company never ratifies | Promoter remains personally liable for performance, payment and any breach |
| Contract expressly excludes personal liability | Promoter may escape liability even without ratification, if the wording is clear |
Because the default position favours the counterparty, suppliers and landlords often prefer dealing with a founder personally in the early weeks, precisely because it gives them a real person to chase if the company never materialises or the ratification never happens.
Practical Steps to Protect Founders and Promoters
- Delay signing where possible. If incorporation is only days away, it is often simpler to wait and sign in the company’s own name.
- Use clear “subject to incorporation” language. Where signing early is unavoidable, state expressly that the agreement is entered into on behalf of a company to be incorporated, and address what happens if incorporation does not proceed.
- Ratify promptly. Do not leave pre-incorporation contracts sitting unratified for months. Deal with them in the first board meeting.
- Keep the paper trail. Board minutes, the ratification resolution and any novation letters should all be kept in the company’s statutory records alongside its other constitutional documents.
- Consider a shelf company instead. Where timing is tight, some founders use an already-incorporated shelf company so that contracts can be signed by an existing legal entity from day one, avoiding Section 41 issues altogether.
Why This Matters for Corporate Secretarial Compliance
Company secretaries and accountants frequently discover pre-incorporation contracts only when a supplier chases payment or a lease dispute surfaces. Building a habit of asking new clients, “did you sign anything before the company was incorporated?” during onboarding avoids nasty surprises later, and is one of the corporate secretarial mistakes that catches new companies out. It also ties directly into broader statutory recordkeeping obligations, since ratified contracts and the resolutions ratifying them should sit alongside the company’s other statutory registers.
For groups that are incorporating a Singapore subsidiary of an overseas parent, this issue comes up constantly, because the parent’s regional team often starts signing local contracts before the Singapore entity is formed. The same Section 41 analysis applies regardless of whether the eventual “promoter” is an individual founder or a foreign holding company’s representative.
Frequently Asked Questions
Can a company ratify a pre-incorporation contract years after incorporation?
Section 41 requires ratification within a reasonable time after incorporation. What counts as reasonable depends on the circumstances, but waiting years is risky. Deal with ratification in the first few board meetings.
Does ratification need to be in writing?
The Companies Act does not mandate a specific form, but a written board resolution, properly minuted, is the only sensible way to create clear evidence that ratification occurred and on what terms.
What if two founders both signed as promoters?
Both may be personally and jointly liable until the company ratifies, depending on how the contract was worded. This is another reason to be precise about who is signing and in what capacity.
Is a letter of intent or term sheet a “contract” for these purposes?
It depends on whether the document is intended to be legally binding. Many term sheets are expressly non-binding except for confidentiality and exclusivity clauses. Always check the document’s own wording rather than assuming.
Getting It Right From the Start
Pre-incorporation contracts are a normal part of getting a Singapore business off the ground, but they carry a real personal risk for founders until the new company formally ratifies them. Building ratification into your standard incorporation checklist, alongside adopting a company constitution and appointing statutory officers, closes the gap before it becomes a dispute.
If your group is also considering a foreign subsidiary structure in Singapore, or you are not sure whether a document your regional team signed last month needs to be ratified, it is worth having a corporate secretarial review before your first annual filing. For the official text of the provision, see Section 41 of the Companies Act 1967 on Singapore Statutes Online, and for guidance on registering a new entity, see ACRA’s website.
Raffles Corporate Services helps founders and regional groups structure new Singapore entities correctly from day one, including reviewing and ratifying pre-incorporation arrangements as part of the onboarding process.
The Editorial Team, Raffles Corporate Services