Question

Donny and Mary decided to incorporate an entertainment and production company to be named
Wayang Hebat Sdn Bhd. They submitted relevant documents to the Companies Commission on
1st March 2020 and a notice of registration was issued immediately on the next day. Upon
incorporation, all their belongings were sold to the company and they gained substantial profit of
RM100,000. A disclosure of profits worth RM50,000 was made to the board of directors and
was later ratified.
On the 15th February 2020, Donny entered into a contract with Merdeka Studio for the making of
a TV drama. The contract amongst others required Merdeka Studio to create a TV drama for
Wayang Hebat Sdn Bhd who shall later pay a sum of RM50,000 to the former once the TV
drama is completed and aired by any television networks. Upon receiving the TV drama on 1st
April 2020, Wayang Hebat Sdn Bhd sold it to a well-known television station and was aired
twice since then. To date, Merdeka Studio has yet to receive any payment from Wayang Hebat
Sdn Bhd. When asked for the payment, Wayang Hebat Sdn Bhd refused to be bound by the
contract on the grounds that no approval was given to Donny to enter into such a contract on the
company’s behalf.
Based on the above given situations, advise Wayang Hebat Sdn Bhd on the following matters:

a) The sale by Donny and Mary of their belongings to Wayang Hebat Sdn Bhd
b) The contract with Merdeka Studio.

Answer 1

the question is based on Pre-Incorporation contract and Contract after Incorporation,

Pre-Incorporation contracts are the contract by the persons concerned with company entered into on behalf of a company prior to the date of its incorporation.

the companies act provides that if the bord of directors of the company has neither ratified nor rejected a particular pre-incorporation contract made or done in the name of the company within three months after the date on which the company incorporated, the company will be regarded as having ratified that agreement. in thge event that the company is not incorporated, or if incoporated but refused to adopt and ratify the agreement, the persons entered into the contract is jointly and severally liable with any other persons for the liabilities created as provided for in the pre-incorporation contract.

such contract may be ratified by the company subsequent to its incorperation. if so ratified the company becomes bound by it and is entitled to the benefit of it as if the company had been in existence at the date of the contract and had been a party to it. prior to, or in default of ratification, the person or persons who purported to act in the name of, or on behalf of the company are  personally ( jointly and severally ) bound by the contract and are entitled to the benefit of it, unless there is express agreement to the contrary.

so,

a) The sale done by Donny and Mary of their belongings to Wayang Hebat Sdn Bhd is after the date of incorporation of the company, so the company is entitled to the benefits of the contract. and the contract is so valid,

b)Wayang Hebat Sdn Bhd is not ratified the contract done by the Donny on the grounds that no approval was not given to Donny to enter into such contract behalf of the company, so the Company is not liable to pay any amount, and Donny is personally liable to such contract.