Pre-Incorporation Contract

The practical sequence for a founder is straightforward.

While registration is in progress, sign in your own name expressly on behalf of the company to be incorporated, naming the proposed company. Do not simply sign as though the company already exists, because that misdescribes the position and complicates ratification.

Keep every pre-incorporation contract together in one file. Founders forget what was signed and in whose name.

After incorporation, ratify. The board passes a resolution adopting the contracts entered into on the company's behalf before incorporation, identifying them specifically. That resolution is what brings them into the company.

Where the counterparty is significant, tell them. A supplier or landlord who understands that the company will be substituted on incorporation is far easier to deal with than one who discovers it later.

Until ratification, the founder who signed remains exposed personally, which is a reason to ratify promptly rather than at the first board meeting six months later.

The provision is one of the more useful founder friendly features of Nigerian company law, and very few founders know it exists.

The practical Nigerian pattern is that founders sign leases and supply agreements during the weeks the CAC registration is being processed, then never formally adopt them. The contracts sit in a grey zone: performed by the company, invoiced to the company, but signed by an individual and never ratified.

That is usually fine until something goes wrong. A dispute with a landlord, a claim by a supplier, or a due diligence exercise, and the question of who is actually party to the agreement becomes live. A founder who signed personally and never ratified may find the claim comes to them.

Ratification costs nothing. A single board resolution at the first meeting, listing the agreements adopted, resolves it.

The related point is registration timing. Nigerian company registration is now measured in days rather than weeks where the name is available and the documents are in order, which means the window for pre-incorporation contracts is shorter than it used to be. Where a transaction is significant, waiting for incorporation is often simpler than ratifying afterwards.

Founders should also note that ratification does not rewrite the contract. The company adopts it as it stands, including terms the founder agreed under time pressure.

Three ways a company can end up party to something a founder signed.

Ratification under CAMA is the simplest. The company adopts the pre-incorporation contract after formation, and becomes bound by it and entitled to its benefit. Only the company's act is required.

Novation replaces the original contract with a new one between the counterparty and the company, releasing the founder. It requires all three parties to agree, which gives the counterparty a moment to renegotiate.

A new contract simply starts again between the company and the counterparty. It is cleanest where the original terms were agreed hurriedly and the founder would rather redo them.

Ratification is usually the right answer because it is unilateral and preserves the original terms. Where the founder wants out entirely and the counterparty must release them, novation is the mechanism.

Ratification adopts the contract as it is. A founder who agreed poor terms cannot improve them by ratifying, and the company inherits everything including the bad clauses.

Until ratification the signer is exposed, and if the company is never incorporated, or never ratifies, that exposure is permanent.

The counterparty may also resist. Where a contract was negotiated on the strength of a known individual's involvement, a counterparty may prefer to keep them on the hook, and a novation releasing the founder needs their agreement.

And not everything can be handled this way. Regulatory permissions, licences and matters requiring a registered entity cannot be dealt with by a founder in advance and ratified afterwards.