Ahmed signs a lease of a shop 'for and on behalf of Blue Ltd', which has not yet been incorporated. Blue Ltd is later formed and adopts the lease. Who is liable on the lease, applying section 51 of the Companies Act 2006?
Answer and explanation
Correct answer: B. Ahmed is personally liable
- Step 1: Section 51 makes a person who purports to contract for a company before it is formed personally liable, subject to contrary agreement.
- Step 2: A company cannot ratify pre-incorporation contracts (Kelner v Baxter), though it may enter a new contract or novation.
Answer
Ahmed is personally liable.
Why not the others: Ratification is not possible; the contract is not void because Ahmed is personally bound; the landlord and Blue Ltd may agree a novation that releases Ahmed.
Practise more Agency, financial services and business tax.
Free questions with an explanation for every one, and full timed SQE1 (Solicitors Qualifying Examination) mock tests.
More Agency, financial services and business tax questions
- The board of Cobb Ltd limits its managing director, Dee, to contracts below £50,000. Dee, who customarily makes larger purchases, signs a £2…
- What is the main rule about a company's standard corporation tax charge for accounting periods starting in 2025/26 on profits above £250,000…
- A sole trader makes a taxable profit of £40,000 in 2025/26 but draws only £25,000 from the business for personal use. On how much is she ass…
- Jonah, a higher rate taxpayer, sells shares in 2025/26 and realises a chargeable gain of £53,000. Ignoring losses and other disposals, how m…
- A company sells a warehouse at a profit. How is the gain treated for tax purposes?
- Which statement about the general prohibition in section 19 of the Financial Services and Markets Act 2000 is correct?