Promoters

Duties and Liabilities of Promoters

 PROMOTER

According to L.J. Brown. “The term promoter is a term not of

law but of business, usefully summing up in a single word a
number of business operations familiar to the commercial
world by which a company is generally brought into
existence.”

According to Justice C. Cockburn. “Promoter is one who

undertakes to form a company with reference to a given
object and to set it going, and who takes the necessary steps
to accomplish that purpose.”
 PROMOTER

According to Palmer: “Company promoter is a person

who originates a scheme for the formation of the
company, has the memorandum and the articles
prepared, executed and registered and finds the first
directors, settles the terms of preliminary contracts and
prospectus (if any) and makes arrangement for
advertising and circulating the prospectus and placing
the capital.”
PROMOTER: Is a person who undertakes a number of business
operations to bring company into existence and set it going
Section 2(69) of Companies Act 2013, deals with the term
Promoter:
a) A person who has been named as such in a prospectus or is
identified by the company in the annual return in section 92; or
b) A person who has control over the affairs of the company,
directly or indirectly whether as a shareholder, director or
otherwise; or
c) A person who is in agreement with whose advice, directions or
instructions the Board of Directors of the company is
accustomed to act.
Provided that nothing in this sub clause c. shall apply to a
person who is acting merely in a professional capacity.
 Functions of the Promoter

1. Identifying the business opportunity

2. Assembling the ideas
3. Preparation of financial plans
4. Incorporation
5. Presentation
 Relation of Promoter with the Company

● Legal Status
Lindley.L.J: “Although not an agent for a
company , nor a trustee for it before its
formation, the old familiar principles of the law
of agency and of trusteeship have been
extended and very properly extended to meet
such cases.”
 Relation of Promoter with the Company

Fiduciary Position:
“ They stand in my opinion, undoubtedly in a fiduciary
position. They have in their hands the creation and
moulding of the company. They have no power of
defining how and when and what shape and under
what supervision it shall start into existence and begin
to act as a trading corporation”.- Lord Cairns
( In Erlanger v. New Sombrero Phosphate Co., (1878)LR App cas1218)
 Fiduciary Position:

1. Not to make any profit:

2. To give benefit of negotiation to the company
3. To make a full disclosure of interest or profit
4. Not to make unfair use of positions
 Duties of Promoters as regards Prospectus

1. It is the duty of the promoter to disclose all the secret profits made by him and
also he should not make any secret profit and even if he does, then he has to
disclose it.

2. It is the duty of the promoter to disclose all the relevant material facts.

3. It is the duty of the promoter to make good to the company what he has obtained
as a trustee and not what he may get at any time.

4. The promoter has to disclose all the private arrangement which gives him the
profit by promoting the company.

5. It is the duty of the promoter to stand in relation to the future allottees of the
shares.
 Duties of Promoters as regards Prospectus

The promoter must see that the prospectus issued should contain the
necessary particulars and does not contain any untrue or misleading
statements or does not omit any material fact.If the promoter fails to
perform this duty:
1. Allotment of Shares may be set aside
2. He may be sued for damages
3. He may be sued for compensation for misrepresentation
4. May be sued for damages by shareholders- for non compliance with
the statutory requirements as to the contents of prospectus
5. May be liable to criminal proceedings
 Rights of the Promoters
● A Promoter has no right to get compensation from the company
for his services in promoting the company unless there is a
contract to that effect if there is no such contract he is not entitled
to get any compensation from the company in respect of the
formation of the company
1. Entitled to reasonable remuneration
2. Can recover Preliminary expenses incurred Prior to incorporation
3. He can recover the price of any property he has purchased for the
company.but the transaction must be ratified by the incorporated
Board of Directors
THANK YOU