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A pre-incorporation agreement is crucial to establish the organization, control, and operation of the proposed business during the pre-incorporation process.
A pre-incorporation agreement may avoid disputes which may take place in future. By drafting an agreement on important terms at the beginning of incorporation, before later efforts complicate matters. Frequently, to avoid the dispute in future like pre-incorporation agreement; shareholders agreements and confidentiality agreements are also created at the same time.
A pre-incorporation agreement is one of the legal forms used at the beginning of the incorporation process. By using a pre-incorporation agreement, the proposed entity or the promoters of the proposed entity ensures that everyone involved in establishing or developing the business has a clear understanding of the plans, strategy thereby minimizing the chance for future disputes and litigation. A pre-incorporation agreement includes the date for completing the formation of a corporate and it also contains the provision for handling the cost and expenditures occurred in incorporating the company.
It lays out the out the basic organization of the business, the name of the business, its purpose, its mission and vision, the directors of the proposed company, their role in the company and its business, a capital contribution of the promoters etc.
The following are some of the basic terms included in pre-incorporation agreements:
NAME of the proposed entity that is the name and style which will be registered with the appropriate authority and with which it will carry on the business.
What will be the object of the company or the business activity that shall be carried on by the company once it gets incorporated? Does the business activity require any license from the respective authority; if yes then what is the procedure or action taken to obtain such license?
A date for completion of corporate formation. There must be a target date to accomplish the incorporation procedure.
The address of the corporate headquarters that will be used in the articles of incorporation. The address of the office which shall be used in future for the further communication and for receiving the documents on behalf of the company and that office shall be used where the documents will be kept safely.
Name of all the proposed directors if any chosen or name of the officers. Their occupation, address and all other information which may be necessary.
What will be the Capital contributions of the subscribers or what will be the mode of the contribution?
Terms for the establishment of a corporate bank account and authority for signing corporate checks. Where the bank account will be open in the name of the company and who will be authorized to carry out the transaction for and on behalf of the company.
A person who will be authorized to carry out the business operations such as signing contracts and borrowing on behalf of the corporation.
Reimbursement of shareholder fees and expenses for handling incorporation and corporate matters.