Explain the various ways in which persons intending to form a company may avoid personal liability on contracts they make on behalf of the proposed company.

• As a general rule a pre incorporation contract against the company did not exist and cannot ratify the transaction when incorporated, nor can directors of the company adopt or conform the contract (see Kelner V. Baxter) (Price V. Kelsal) (North SydneyInvestments and General Tramways V. Higgins & Another) (Natal Land Company V.Pauline Colliery Syndicate)
• However a person can escape liability on per incorporation contracts by:
o The company entering into a new contract to the same effect as the previous one (Mawagolas case).
o Entering into a contract which expressly provides that the promoters liability shall cease when the company is formed.
o Entering into an agreement which expressly provides that it becomes legally binding upon the company when incorporated.

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