WHO IS A COMPANY PROMOTER?

1. T he “ P rom oter ”— A Confused P roblem

J o s e p h P a s s m o r e , a solicitor, among many others, gave evidence

before the Cohen Committee on Company Law Amendment (1948
-45). In the minutes of the evidence 1 before the Committee an
interesting exchange takes place:
Q : Do you feel you know who are the promoters ?
A. No. There are many occasions when I do feel I do not know
who the promoters are, and there is no definition of them
in the Act.
Q : But I mean, what ought the definition to be ? It is not simply
anyone who meets someone at a club during the six months
prior to the issue because that is obviously a little too wide ?
A. I do not think that it is within my province to draft a pro­
vision stating what is a promoter, and I must, I am afraid,
confine myself rather to the negative remark that the Act
does not guide us and we do not know.
All of which is an accurate summary not only of the law as it
stood, or more properly failed to stand, in 1948, but also as it con­
tinues to stand today in 1970. Notwithstanding the Cohen Commit­
tee and the legislation of 1947-48, and the Jenkins Committee and
the legislation of 1967, the term “ promoter ” remains ill-defined by
the Companies Act, or for that matter by the common law. This is
a most surprising omission, because the promoter has dramatically
increased in importance since 1945, and his position like that of
director, is one of the most vital factors in modern corporate
organisation. The promoter’ s service is also economic. He has
the flair and imagination required to transform ideas into profitable
business. He brings together the persons needed to effect that
transformation, and superintends the various steps required.
Arthur Dewing, Professor of Finance at Harvard University
noted 2: “ All business enterprises owe their existence, in the
beginning to the imagination of some one man. . . . The American
Telephone and Telegraph Company owed its existence to the
imagination of Alexander Graham Bell. . . . but the success of the
company in its earliest years was due quite as much to the skill

1 Minutes of evidence before the Cohen Committee QQ.7228 et seq.

2 Dewing, A. S., Corporation Finance (Rev. ed.. New York, 1932), p. 42.
493
of another man. . . . Bell’s associates are all to be looked upon
as ‘ promoters ’ because their united efforts were required to launch
the new undertaking.” Promotion requires, if it is to be successful,
ability and business integrity as well as the willingness to take the
necessary risks incidental to the organisation and early financial
sponsorship of an industrial undertaking. This importance has been
recognised by the courts as long ago as 1871, in Touche v. Metro­
politan Railway Warehousing Co.3 Lord Hatherley put it thus
“ the services of the promoter are very peculiar; great skill, energy
and ingenuity may be employed in constructing a plan and in
bringing it out to the best advantage.”
Registered companies carry on the preponderant part of the
country’ s manufacturing industries, and public companies play the
larger role in those industries. The promotion and activities of
most public companies have important economic and social conse­
quences.4 There is an increasing interest in the issue of new shares,
and investors prefer stocks and shares to other forms of investment.
It appears that many new investors are not of the traditional type
and have as a result, less experience and understanding of the
intricacies of the market.5
The question of the legal status of promoters is therefore of
great public importance. Yet, it has never been discussed exhaus­
tively either by the courts or the legislature. More surprising in
view of this lacuna, the questions of law arising from the acts and
omissions of promoters are complicated and call for a far more
intensive consideration than has been given in any general work on
companies.5 Such case law as exists is confusing: far too much
emphasis having been laid on guarding against “ secret ” profits
made by promoters and too little on solving the problem of his
equivocal legal status. When a modern legislator wishes to codify
company law he must admit that “ it seems essential to codify the
duties of promoters,” but “ unhappily it presents quite exceptional
difficulties.” 7
The central problem is that throughout the development of
company law in England and the U .S.A., the promoter has had no
express recognition, nor has his relationship to the corporate body he

» (1871) L .R . 6 Ch.App. 671. 676.

4 Radcliffe Committee on the W orking of the Monetary System 1959 (Cmnd. 829),
para. 2Q8.
5 See evidence of Harold W incott. Editor-in-Chief of the Investors Chronicle,
before the Jenkins Committee (1960), QQ.9-10.
• There are three old books on the subject, and none of them can be considered
authoritative: H ibbert and Rafferty (London, 1898); Alger, M. A. (Boston,
1897); Ehricb (Albany, 1916).
7 Thus runs p. 31 o f the Final Report of the Commission of Enquiry into the
W orking and Administration of the Present Company Law of Ghana, 1961.
forms. He is the illegitimate child of the law— actively known,
and formally ignored. This situation leads to a complex, and for
the promoter, risky situation; for example:
(a) The law provides no way for him to be remunerated for his
services; and
(b) he cannot claim his expenses from the company which is not
yet in existence.*
He is thus forced to seek his profit in a hidden manner; simply
because the only contract he can make pending the organisation of
the company is a personal one.’ He must buy in his own right and
then sell to the company. Commercially this apparatus is unsound;
no businessman can be expected to take the whole risk of a trans­
action without the legally protected power to make a profit from it.
However, that is the present situation, and it has persisted over
many years. The legacy is an Anglo-American legal literature brim­
ming with the scandalous doings of promoters, their skullduggery
and their “ secret ” profits.

2. S ig nificance o f the D ef in it io n
It is often of the utmost importance to define the term “ promoter,”
a term which covers a wide range of persons. “ Both the pro­
fessional promoter and the village grocer are promoters to the
fullest extent.” 8a T o establish any liability of a defendant, a
plaintiff may first have to prove that the defendant is a
promoter. “ It becomes necessary,” says Bacon V.-C. in Bag-
nall v. Carlton,8 *10 “ to consider first what constitutes a pro­
moter of a joint stock company,” and Bowen J. in Whaley
Bridge Calico Printing Co. v. G reen 11 says that “ in every
case the relief granted must depend on the establishment of
such relations.” Once we have arrived at the conclusion that the
defendant is a promoter the question of liability may cause much
less trouble.12 Another important reason for the need of definition

8 Re English it Colonial Produce Co. Ltd. [1906] 2 Ch. 435 (C.A.).

* Kelner v. Baxter (1886) L .R . 2 C.P. 174. Promoters, on occasions, did go
beyond all reason at the expense of the public who bought up the company
shares. The hostility of the courts became such that the fact that a promoter
profited at all was sufficient excuse to crowd him into the ranks of fiduciaries.
In Re British Seamless Paper Box Co. (1881) 17 Ch.D. 467, 472, Jessel M .R.
sa id: " M y mind is affected— as every Jndge’s mind mu6t be affected— to some
extent, at all events, by what I will call the morality o f the transaction. I
should be more anxious to trounce a rough than I should be to rob an honest
m a n .”
98 Gower, Modern Company Law (3rd ed., 1969), p. 271.
i» (1877) 6 Ch.D. 371, 381.
” (1879) 5 Q .B .D . 109. 111.
11 See Lindley L .J . in Lydney and Wigpool Iron Ore Co. v. Bird (1886) 33 Ch.D.
85, 93 (C .A .): “ H aving arrived at these conclusions of fact (i.e., who is fhe
496 The Law Quarterly Review [V o l . 86

is that the Companies Act 1948 imposes the duty on every public
company to disclose in its prospectus, or statement in lieu, particu­
lars of every payment or benefit made or given to a promoter.15
How can the company and the persons who have authorised the
issue of the prospectus fulfil their duty without knowing who are
the promoters ? In spite of the long discussions on the subject and in
spite of its terms of reference, the Cohen Report made no pro­
posal for the amendment of the law of promoters and no attempt to
define the term “ promoter.”

8. T he U se of th e T e e m “ P k om o tek ” in th e C om pan ies A cts

The term “ promoter ” was used for the first time in the Joint Stock
Companies Act 1844 14 to define “ every person acting by whatever
name in the forming and establishing of a company at any period
prior to the company obtaining a certificate of complete registra­
tion.” 15 The term was, since then, recognised by the courts, but
the legislative definition did not appear in the new Companies Act
1862.15 Although the word itself has since then never been defined
it was in common usage and was used to denote those persons who
bring the company into existence, by taking an active part in
forming it, and in procuring persons to join it as soon as it is
technically form ed.”

promoter) the legal principles applicable to them do not present any real
difficulty."
13 Companies Act 1948, 4th Sched. Part I, para. 13: " Any amount or benefit
paid or given within the two preceding years or intended to be paid or given
to any promoter, and the consideration for the payment or the giving of the
benefit.”
7 & 8 Viet. c. 110, s. 3. For other Acts where the term “ promoter " was used,
see: the Land Clauses Consolidation Act 1845 (8 & 9 Viet. c. 18), s. 2 ; the
Railway Construction Facilities A ct 1864 ( 27 & 28 Viet. c. 121), s. 2 ; the
General Pier and Harbour Act 1861 (24 & 25 Viet. c. 45 ); the Parliamentary
Costs Act 1865 (28 & 29 Viet, c. 27), s. 9 ; the Tramways Apt 1870 (33 & 34
Viet. c. 78), s. 211; the Military Tramway Act 1887 (50 & 51 Viet. c. 65),
s. 12.
15 It seems that this statement refers also to a period when the promoter's duties
involved obtaining legislative action and is now inappropriate or inadequate.
Originally the term meant those persons who “ held themselves out to be
common informers in penal and popular actions " (see Jowitt, The Dictionary
of English Law (London, 1959), Vol. 2, p. 1424). The grammatical meaning of
the term as it appears in the Oxford Dictionary (V ol. 8, p. 1455) is : " O n e
who or that which promotes, advances, or furthers any movement or project; a
furtherer, an ' encourager.’ " And in the monetary sense, the Dictionary
describes a promoter a s : “ One who promotes, or takes the requisite steps
for the formation o f a joint stock company. One who is a party to the
preparation or issue of the prospectus." Today the expression generally means
either a person who procures the passing o f a private Act of Parliament, or a
person who floats a company. (Jowitt, op. cit. at p. 1455).
'« 25 k 26 Viet. c. 89. The Companies Act 1867 (30 & 31 Viet. c. 131), s. 38,
contained again the term “ promoter,” but did not define it.
17 See Lindley on Companies (5th ed., 1889), p. 346.
O ct . 1970] Who is a Company Promoter? 497

The Companies Act 1948,18 describes the promoter only with

reference to his civil liability for mis-statements in the prospectus:
43.— (5) “ For the purposes of this section—
(a) The expression * promoter ’ means a promoter who
was a party to the preparation of the prospectus, or
of the 19 portion thereof containing the untrue state­
ment, but does not include any person by reason of
his acting in a professional capacity for persons en­
gaged in procuring the formation of the company.”
Another fairly wide description is used in section 333 of the
Companies Act 1948 where the court is empowered to assess damages
against delinquent directors, promoters, e tc .:
333.— “ (1) If in the course of winding up a company it
appears that any person who has taken part in the formation or
promotion of the company, or any past or present director,
manager or liquidator, or any officer of the company, has mis­
applied or retained or become liable or accountable for any
money or property of the company, or been guilty of any mis­
feasance or breach of trust in relation to the company, the court
may . . . examine into the conduct of the promoter, director
. . . and compel him to repay or restore the money . . .” 20
Despite the fact that the expression “ promoter ” is frequently
used by the legislature and the judges, it has never been clearly
defined either judicially 21 or legislatively, and we have not any
satisfactory definition of the term.22

18 11 & 12 Geo. 6, c. 38, b. 43. See s. 37 o f the Companies Act 1929 (19 & 20
Geo. 5, c. 23), a. 65 o f the Companies Act 1947, s. 84 of the Companies Act
1908 (8 Edw. 7, c. 69). See also H alsbury's Statutes of England, 2nd ed.,
Vol. 3, p. 495. A similar definition may be found in the South Africa Com­
panies Act 1926, s. 229. Since the 1948 Act defines the promoter only for the
purpose of section 43, the statutory exemption is also limited to this section,
but it is generally established that persons who are merely employed in a pro­
fessional or technical capacity, such as a solicitor, an accountant, a valuer or a
business consultant will not as such be regarded as promoters. Cf. Pennington,
Company Law (2nd ed., 1967), p. 450.
18 The Companies Act 1958 of Victoria (7 Eliz. 2, H o. 6455), s. 3, adds the word
" relevant.”
50 See also b. 38 of the A ct: “ (1) Subject to the provisions of the nextfollowing
section, every prospectus issued by or on behalf of a company, or by or on behalf
of any person who is or has been engaged or interested in the formation of the
company, must state the matters specified in part I of the Fourth Schedule

21 The judges refused also to define the term, their attitude being that " it is
impossible to define the term " {Emma Silver Mining Co. v. Grant (1878) 11
Ch.D. 918).
22 ProfeB60r Gower, who in codifying the Ghana company law, had to overcome
the difficulties in formulating the law of promoters, said in his report that,
“ The initial difficulty is to define ‘ prom oter,’ something which no one has
yet succeeded in doing with any precision." Ghana Companies Report, 1961,
p. 31. See Palm er's Company Precedents (17th ed., 1956), Part 1, p. 22.
86-18
498 The Law Quarterly Review [V ol . 80

4. T he R easons f o r th e L ack of a D efin ition

There are three basic reasons why the law lacks a proper definition
of a “ promoter.”
(1) A promoter’ s conduct falls to be considered by the courts
when misfortune or fraud has brought the company into
difficulties. In such circumstances the judges have been
satisfied that secret profits are inequitable, and that anyone
who has made them is a promoter. It is this view that has
brought the term promoter itself into disrepute. Dewing,
in his book Corporation Finance,23 describes the situation
thus: “ Unfortunately there has appeared in fiction, in
newspapers and even in the public consciousness the impres­
sion—often verging on a conviction, that the promoter is an
impecunious silvery tongued vendor of worthless shares in
mining and oil projects.” 231
(2) One school of thought insists that promoter is best left as a
business term rather than a legal one. It sums up “ a num­
ber of business operations familiar to the commercial world
by which a company generally is brought into existence.” 24
(8) The courts have intentionally failed to set down a definition
in a formal sense. If such a definition were laid down it
might be possible for persons concerned in the promotion of
companies to avoid its limitations and take advantage of
their fiduciary positions without incurring liability as
promoters.252 6

Textbook writers have as a result of the confused state of the law

baulked at any attempt to lay down their own definitions. Palmer
excuses himself on the grounds of the inherent complexity of such
a task.25 Buckley says it would be “ no easy task.” 27 In essence,
it must therefore always remain a question of fact, depending upon
all the circumstances of the case.

23 5th ed., New York, 1953, p. 44.

233 See also Gower, Modern Company Law (3rd ed., 1969), p. 270, who describes
the promoter as “ . . . someone whose profession it was to form boguB com­
panies and foist them off on the public to the latter's detriment and his own
profit."
24 Twycross v. Grant (1877) 2 C .P .D . 469.
23 See Farrar, H ., Elements of Company Law (7th ed., 1957), p. 10; Connell and
Busse, Companies and Company Law, 6th ed., p. 15; Pyemont, Company Law
of South Africa (6th ed., 1953), p. 198.
26 Palm er's Company Precedents (17th ed., 1956), Part 1, p. 22; cf. Stiebel, A.,
Company Law and Precedents (3rd ed., 1929), p. 95: “ it is not an expression
which lends itself to an exact definition."
27 Buckley, Companies Act (13th ed., 1957), p. 108.
O ct . 1970] Who is a Company Promoter? 499

5. I nstances S h o w in g w h o are P ro m oters

There have been a number of pragmatic solutions adopted in a

variety of cases.
A. The case of 13agnail v. Carlton 28 is a good example of the
attitude of the courts to the problem, and the way they solve it.
Bacon V.-C. began by saying “ It becomes necessary to consider
first what constitutes a promoter of a joint stock company.” 29 But
as all the other judges had done in previous cases, he continued:
“ Without attempting to define it in any more certain manner
than the occasion requires, it will be sufficient to consider
whether what was undertaken and done by the several defend­
ants can be referred to any other character than that of
promoters.”
The plaintiff was a company formed for the purpose of purchasing
and working a colliery and ironworks, formerly the property of
J. Bagnall, deceased. Before the company was formed, J. Bagnall’s
trustees entered into negotiations with Richardson, a financial agent,
to set up a company for the purchase of the property for about
£3 0 0 ,0 0 0 ; and under an agreement, which was called in the plead­
ings, “ the secret agreement,” the trustees agreed with Carlton that
he should bring out the company or forfeit £20,000; and that they
should pay £85,000 for commission and risk. On the same day
Carlton agreed with Grant that Grant should take the whole risk of
bringing out the company, and should receive £60,000 out of the
£85,000. Messrs Duignan and Lewis, the vendors’ solicitors, were to
receive £1,500 from the tenant for life of the property if the purchase
was completed.
The company was established, the first directors being found by
Richardson; and Duignan and Lewis became the solicitors of the
new company. The prospectus and articles referred to the agree­
ment for the purchase of the property, but made no mention of
the agreement between the vendors and Carlton, or of any of the
arrangements relating to it. The purchase money was paid to the
vendors, who paid out of it £85,000 to Carlton, of which he gave
£60,000 to Grant and £10,000 to Richardson.
The directors were not informed by Duignan and Lewis or any
other persons, of the agreement between the vendors and Carlton.
After discovering these facts, a bill was filed by the company against
the vendors and against Richardson, Carlton, Grant, and Duignan
and Lewis, praying that the purchase might be rescinded, or that
the defendants might be held liable to pay all the profits which they

29 Bagnall v. Carlton (1877) 6 Ch.D. 371 (C.A.). 29 Ibid, at p. 381.

500 The Law Quarterly Review [V ol . 86

had made by the transaction. Before the case came to a hearing,

the plaintiff compromised the suit with the vendors, receiving from
them £81,000 as consideration for not insisting on rescission.
The court held that the compromise with the vendors did not
affect the claim of the plaintiff against “ the promoters ” who had
to give back their secret profit less their expenses. Bacon V.-C.
giving his judgment stated that from the very first suggestion of the
sale of the business and property, the subject of the action, it was
the conviction and intention of all persons engaged or interested in
the matter that they should be sold to a company. The defendants
in this case who “ had carried into full and perfect completion ”
their design that a company should be formed and received from
the vendor a part of the purchase money were held promoters; and
were liable to give back the secret profit taken by them.
In another leading case which was discussed two years later, the
same Mr. Grant failed again in an action brought against him. In
this case,30 Grant agreed with the vendors of a mine that the vendors
would sell a mine to a company to be formed by Grant for its
purchase at the price named, and that Grant should receive 20 per
cent, of the allotted capital of the company. The memorandum of
association and prospectus of the company which afterwards was
formed, stated that its object was to buy the mine, but they con­
tained no reference to the agreement under which Grant received the
above amount. Jessel M .R. stated 31 that Grant was a promoter of
the company. Grant not only was the person who was to form the
company, but he himself bought on behalf of the company by
the very first contract. He was the person who was the author of the
memorandum and the articles of association, adopted the contract
on behalf of the company, and acted from beginning to end for the
company, formed it, provided it with directors, made a contract for
it, and adopted that contract for it. Jessel M .R. held that such a
person is a promoter. It is not necessary that he should have done
all these things to make him a promoter, even some of them would
be sufficient.31
It was this same “ professional promoter,” Grant, who afforded
Cockburn C.J. in Twycross v. Grant 33 the opportunity of expres-
30 Emma Silver Mining Co. v . Grant (1879) 11 Ch.D. 918. '
si Ibid, at p. 935.
32 The uee o f the term “ promoter ” in those days was still rare and therefore
Jessel M .R . adds also that “ Mr. Grant becomes as I understand it under the
authorities, a trustee, agent, or person in a fiduciary position as regards the
com pa n y ."
33 (1877) 2 C .P.D . 469. where the owner o f a concession agreed with Grant that
the concession should be sold to contractors with a view to its being sold by
them to a company to be forthwith formed for this purpose, the contractors
finding funds necessary for Buch formation. The owner and Grant were held to
be promoters.
O ct . 1970] Who is a Company Promoter? 501

sing his views on promoters. In this case Cockburn C.J. described 34

the promoter as “ one who undertakes to form a company with
reference to a given project and to set it going, and who takes the
necessary steps to accomplish that purpose.” Regarding the defend­
ants in this case he said that from the beginning the defendants were
the promoters of the company. They framed the scheme; they not
only provisionally formed the company, but were, in fact, to the
end its creators; they found directors, and qualified them; they
prepared the prospectus; they paid for printing and advertising, and
the expenses incidental to bringing the undertaking before the world.
“ All the things I have just referred to were done with a view to the
formation of the company, and so long as the work of formation
continues, those who carry on that work must, I think, retain the
character of promoters.”
B. These cases should be compared with Lydney and Wigpool
Iron Ore Co. v. Bird,35 where Messrs. Bird were agents employed by
vendors to form and launch a company for the purpose of purchasing
some mines belonging to the vendors. They undertook all the
business connected with the issuing of the prospectus and the bring­
ing out of the company. Messrs. Bird subscribed the memorandum
and the articles of association of the company. They also guaranteed
the subscription of the shares which were to be offered to the public.
It was strongly urged that Messrs. Bird did many things in the
course of the transaction which showed that they were promoters;
that they took upon themselves the drafting, the settling, the print­
ing and publishing of the prospectus of the company, and that they
throughout acted as if they were the masters of the situation from
the beginning, and thus showed themselves to be the persons prin­
cipally interested in the matter. The answer of Pearson J. to all
the arguments put forward was that to his mind they acted through­
out merely as agents, and as such, it was their duty under the
circumstances to do everything with regard to the prospectus which
they actually did.
Another point was that Messrs. Bird were to guarantee the
placing of the shares, and while this was in progress they bargained
with Messrs. Alloway (the vendors) that, when the company was
established, they should sell, and should realise a commission for so
doing. To this, Pearson J. answered: “ No doubt a very little will
make people promoters of a company, if it can be seen that they
were really doing something in the way of speculation for their own
interest, and not acting merely as agents for others.”
Describing the acts of Messrs. Bird, Pearson J. said that all that

34 Ibid, at p. 541. 35 (1885) 31 Ch.D. 328. affd. (1886) 33 Ch.D. 85 (C.A.).

50*2 The Law Quarterly Review [V ol. 86

they bargained for was that if the company was started by means
of their services as agents for the vendors, they should be named in
the articles of association, not as permanent agents for the company,
but simply so that they should have the first chance of becoming the
agents of the company. Pearson J. continued: “ I think it would be
too hard to hold on this ground that they must be considered as
having become promoters of the com pany.” 383 2
1
*4
9
This view was not upheld by the Court of Appeal.3’ Lindley
L .J., delivering the judgment of the court,33 said that James Bird
in fact procured the formation of the company. He suggested its
formation, he took an active part in the preparation of its prospectus
and memorandum and articles of association, in the appointment of
two of its first directors, in the appointment of its secretary, and he
procured his own firm to be engaged to conduct the sales of the com­
pany at a large commission. After referring to the other facts of the
case, Lindley L. J. came to the conclusion: “ On this point we are
unable to take the same view of the evidence as that taken by Mr.
Justice Pearson.”
C. In the Erlanger case,3* it was held that where an agent of a
syndicate, or trustee for a company purchases property and sells it
to a new company formed forthwith by the syndicate or company
for that purpose, the members of the syndicate, or the company, are
promoters.
The same applies, of course, to a case where a man joins with
some other people in agreeing to purchase property with a view of
selling it to a company which they intend to form,80 and if another
man entered into a sham contract with the purchaser of the pro­
perty, to be used in negotiating the sale to the company, he might
also be a promoter.81 The courts’ tendency is to widen the circle of
people who are promoters. One who, in consideration of a share
of the profits, assists the promoter in the organisation of a corpora­
tion was held to be a promoter.82 If a person is, in fact, a promoter

38 Arriving at this conclusion, Pearson J. relied, inter alia, on Arkwright v.

Newbold (1880) 17 Ch.D. 301, in which the Court of Appeal, finding that the
purchase money at property sold to a company had not been increased or
loaded in order to pay promotion money, said that the money was paid by the
vendors, and that the vendors bad a right to deal with the purchase money in
any way they pleased.
37 Sydney it Wigpool Iron Ore Co. v. Bird (1886) 33 Ch.D. 85 (C.A.).
38 Cotton, Lindley and Lopes L .J J ., ibid, at p. 92.
39 Erlanger v . New Sombrero Phosphate Co. (1878) 3 App.Cas. 1218 (H.L.).
10 Lindsay Petroleum Co. v. Hurd (1874) L .R . 5 P.C. 221.
41 Whaley Bridge Calico Printing Co. v. Green (1880) 5 Q .B .D . 109.
42 Emma Silver Mining Co. v. Lewis (1879) 4 C .P .D . 396, 409. Persons who
conspire with promoters to consummate a transaction whereby secret profit is
obtained by promoters, are equally liable for such profit although they did not
occupy fiduciary relations of promoters. Clark v. Daniels, 250 Micfi 22, 229
N .W . 495 (1930).
O ct . 1970] Who is a Company Promoter? 503

he does not escape legal liability by concealing his activities from

the public gaze.43 In a Canadian case, it was held that a person
who was approached by the active promoters, and had consented to
act as president after the formation of the company, seen a draft of
the prospectus and had made certain changes in it, made himself a
promoter.44*
D. But the vendor of property to the company is not necessarily
a promoter,43 though he will become one if he or his agent help in
organising the corporation.46
In South Missouri Fine Lumber Co. v. Crommer,47 the pro­
moter purchased land from vendors at a price lower than that which
he had indicated to the company. When the fraud was discovered
and the promoter disappeared, the company endeavoured to make
the vendors liable. There was much conflict of evidence but the
court held that there was no evidence to indicate that the defendants
had helped to organise the company, they did not solicit subscrip­
tions, and it seemed that the promoter had intended to form the
company without the defendants’ knowledge. Hence they were
not promoters themselves.
In another case, a co-owner of land was authorised to receive a
commission on the sale of the land to the promoter of a company.
He later subscribed for stock in the company and fraudulently
agreed with the promoter to make out a receipt for a greater sum
than was in fact paid. He was held jointly liable with the pro­
moter for the profit derived from the fraudulent act, but he was in
no sense a fiduciary as regards the commission which he took on the
sale; here he was in the position of vendor.484
9
It is, therefore, not everybody who is connected with the forma­
tion of a company who can be called a promoter.48 It depends on
the facts of each case whether a person was in the position of a
“ promoter ” at any particular time.

6. A S u g gested T e s t : T he “ A n im u s and F actum ” T est

In Bagnall v. Carlton,50 Bacon V.-C. held the defendants to be

promoters since it was the conviction and intention of the persons
engaged in the purchase to sell the property to the company. “ The

43 Phosphate Sewage Co. v. Hartmont (1877) 5 Ch.D. 394 , 452.

44 Bonhomme v. Bickerdike (1899) 17 Que.S.C. 28-
43 Cover's Case (1875) 1 Ch.D. 182; Wiser v. Lawley, 189 U .8. 260, 47 L . Ed.
802 (1903).
44 Cf. Ijydney it Wigpool etc. v. Bird (1886) 33 Ch.D. 85, 94 (C.A.).
47 202 M o. 504. 101 S .W . 22 (1907).
48 Lomita Land <t Water Co. v. .Robinson, 154 Cal. 36, 97 Pac. 10 (1908).
49 Attending only the formalities of the incorporation is not promotion. The Tele­
graph v. Loetscher, 127 Iowa 383, 101 N .W . 773 (Sup.Ct. Iowa 1904).
89 (1877) 6 Ch.D. 371 (C.A.).
504 The Law Quarterly Review [V ol . 86

defendants were in reality the creators of the company, and were

engaged in forming and constituting it at the time the contracts
were made. It was with a view to, and in the course of its forma­
tion, that these contracts were executed.” Bacon, V.-C. stressed
the intention factor as well as the fulfilment of this intention, “ each
and every one of them must be taken to have been promoters of the
company, and to have carried into f<ull and perfect completion
their common design, that a company should be formed.” The
“ intention element ” was stressed also by Vaughan Williams L.J.
in Re Leeds and Hanley Theatres of Varieties Ltd.*1 where he said
that “ If you trace all the proceedings of the Finance Company,
as detailed in their own minutes, it seems to me clear that they
were acting and intending to act as promoters of this company.”
In Twycross v. Grant,32 Cockburn C.J. stated that ” all the
things I have just referred to were done with a view to the formation
of the company and so long as the work of formation continues,
those who carry on that work must, I think, retain the character of
promoters.” In Gluckstein v. Barnes ** it was argued before the
House of Lords that the syndicate might have changed their minds
and sold the property to an individual. Lord Robertson’ s answer
was ” . . . but as a matter of fact these men intended, when they
bought the mortgages, to sell to a company constituted in the
mode and form described; and they did sell to the company.” The
significance of this factor can also be seen in Jubilee Cotton Mills v.
Lewis.** Lewis was not exonerated from his liability as a promoter
even though the type of company ultimately formed was otherwise
than he intended; it was held that, by staying on as a promoter,
he must be held to have acquiesced.
In other words, mere intention, or agreement to promote a
company 5 *55 is not sufficient without a specific act in furtherance of
1
the intention; such an act must be inferable to the promotion of
the company. A straightforward parallel with the criminal law
terminology of mens rea and actus reus is not out of place. If A
buys property for investment without thinking about forming a
company, at that stage he cannot be held to be a promoter, even
though he eventually promotes a company and sells the property to
it. The intention to promote comes at a later stage and even then he
has not taken any active step in the furtherance of the promotion.

51 [1902]2 Ch. 809 at 822 (italics supplied).

** (1877 )
2 C .P.D . 469.
43 [1900]A.C. 240, 2S6 (H .L .).
51 [1924]A .C . 958 (H .L .). Also a Canadian case on the subject. Proprietory
Mines Ltd. v. Mackoy, 1939 D .R . 461 (C.A.) (affirmed at [1941] 1 D .L .R .
240).
55 Cf. also Whaley Bridge Calico Printing Co. v . Green (1879) 5 Q .B .D . 109.
O ct . 1970] Who is a Company Promoter? 505

At this juncture, preliminary work for the formation of the com­

pany would entitle the courts to the view that as from the pre­
liminary work he was a promoter with all the legal consequences that
that entails.
The defendant who is being sued as a promoter, has to act and
to have the intention to do the specific act as an act in promotion
of the company. To be a promoter one needs both the actus and the
mens, i.e., the intention to promote the company together with
active steps taken to perform this intention.5* What are these
“ active steps taken to perform this intention ” ?
It was held in some cases that if at the time of the purchase of
property the purchasers have taken no step to form the company,
they would not be promoters 57; even where the price for the
purchase is agreed to be paid partly in shares of a company which
the purchaser proposed to form. This was decided in Gover’ s case,55
where one Mappin agreed (July 28, 1878) with Skoines, the owner of
a patent, to purchase the patent for £65,000 to be paid partly in
cash, and partly in the shares of a company to be formed by Mappin.
Three months afterwards (October 25, 1878) Mappin made an
agreement with a trustee for an intended company to sell the patent
to the trustee for £125,000, payable partly in cash and partly in
shares in the company. Shortly afterwards (November 4, 1878) the
company was formed, Mappin being a director. A prospectus was
issued which did not mention the first agreement for purchase.
James L .J. said that at the time when the agreement (July 28,
1878) was made there was no company in existence, and no pro­
moter, trustee or director; the company had not even an inchoate
existence except in the brain of Mappin; and the utmost that could
be said of Mappin was that he was a projector of a company which
he intended and had agreed to promote. The making of that pro­
visional contract (of October 28, 1878) was, according to James
L .J ., the first period of time at which it could be said that the
company had even an inchoate existence; and it was
“ from and after the making of that contract that any fiduciary
or other relation between Mappin and the company began.
In the making of that contract, in presenting his own terms

s‘ This theory might explain the view held by I,..:dley in his book on Companies,
6th ed., p. 349 that: “ it is unsafe to say that any particular person was a
promoter of a particular company, and to infer from thence that he is liable to
account to it as if he had been a trustee. The question in each case must be,
what has the so-called promoter done to make himself liable to the demands
made against him ? ”
57 Ladywell Mining Co. v. Brookes (1887) 36 Ch.D. 400, 409 (C .A .); Re Cape
Breton Co. (1885) 29 Ch.D. 795 (C .A .); affd. sub nom. Cavendish Bentinck v .
Fenn (1887) 12 App.Cas. 652; Re Lady Forrest Gold Mine [1901] 1 Ch. 582.
s* Re Coal Economising Gas Co., Gover's Case (1875) 1 Ch.D. 182 (C.A.).
506 The Law Quarterly Review [V o l . 86

and conditions, he was, according to my judgment, in the

position of any ordinary vendor with any ordinary purchaser.
Everything anterior to that was a matter relating to himself
and to his own title as vendor."
According to Gover’s case there is an “ active step of pro­
motion ” only where the vendor negotiated the promotion with
other people. It is doubted whether Gover’s case represents sound
law after the House of Lords decisions in the Erlanger case 88 and in
Gluckstein v. Barnes.*0 In the latter case it was held that if the
whole essence of the scheme from the first is that a number of per­
sons shall purchase property and form a company to purchase it
from them they must disclose to the company when formed, the
whole of the profits made by them on the transaction.

7. T he “ P r o m o t e r ” — A T e r m of B u sin e ss

The difficulties in defining the term led the judges to state that
the term “ promoter ” is “ not a term of art ” 81 nor a “ term of
law,” 82 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.” 83
This is the most cited description of the promoter, but it is
open to objection. It does not state what are those business opera­
tions. Moreover Bowen J. speaks only about the period until the
company is brought into existence but the promotion period does
not stop with the formation of the company.88 In Emma Silver
Mining Co. v. Grant,85 Bacon V.-C. came to the conclusion that “ it
is impossible to define the term [prom oter].” Some years later he
found 88 a description which, in his view, was “ the most satis­
factory of all these varying definitions possible to be found.” The
definition was given by Lindley L .J. in Emma Silver Mining Co. v.
Lewis,07 and runs thus:
“ As used in connection with companies, the term promoter in­
volves the idea of exertion for the purpose of getting up and5
2

52 (1878) 3 App.Cas. 1218, where it was held that where a trustee for a company
purchases property and sells it to a new com pany formed forthwith by the
company for that purpose, the members of the com pany'are promoters.
«» [1900] A.C. 240 (H .L .).
81 Twycross v. Grant (1877) 2 C .P .D . 469.
62 Whaley Bridge Calico Printing Co. v. Green (1880) 5 Q .B .D . 109, per Bowen J.
83 Ibid.
88 Twycross v. Grant (1877) 2 C .P.D . 469. For an Australian case see Tracy and
others v. Mandalay Pty. (1953) 88 C .D .B . 215.
•s Emma Silver Mining Co. v. Grant (1879) 11 Ch.D. 918.
88 Re Great Wheal Polgooth Co. (1883) 53 I/.J.C h. 12, 46.
*7 (1879) 4 C .P .D . 396.
O ct . 1970] Who is a Company Promoter? 507

starting a company, or what is called floating it, and also the

idea of some duty towards the company imposed by or arising
from the position which the so-called promoter assumes to­
wards it.”
With due respect to Bacon V.-C. and to Lindley L.J. this can
hardly be regarded as very illuminating/8 Perhaps a better de­
finition was given by Lindley L .J. in his book on Companies 80 where
he defines promoters as “ those persons who bring the company into
existence by taking an active part in forming it and in procuring
persons to join it as soon as it is technically formed.” A similar
definition was given by Blackburn L .J. in the Erlanger ca se6 *70:
8
“ The word ‘ promoter ’ is a short and convenient way of desig­
nating those who set in motion the machinery by which the Act
enables them to create an incorporated com pany.” This definition
is, of course, not comprehensive enough.71 The term “ promoter,”
as a business expression, covers a wide range of persons; but one
need not undertake the whole of the work involved in getting the
company going; the work may be divided among the members of a
group, and each one of them may be a promoter.

8. A Co m p a r a tiv e V ie w

The English view of promoters is neither clear nor definite. The

American courts have also refused to define their promoters, and
are content to judge the issue as one of fact alone.72 But in Old
Dominion Copper Mining etc. v. Bigelow,73 Justice Rugg gave a
wide description of the promoter, saying:
“ In a comprehensive sense ‘ promoter ’ includes those who
undertake to form a corporation and to procure for it the
rights, instrumentalities and capital by which it is to carry out
the purposes set forth in its charter, and to establish it as
fully able to do its business.
Their work may begin long before the organisation of the
corporation, in seeking the opening for a venture and pro­
jecting a plan for its development, and may continue after

68 Smith J. in the famous South African case Herzfelder v. McArthur, Atkins <t
Co. Ltd., 1908 T .S . 832, 885, it is submitted, was right in saying that “ the
term promoter, as pointed out by Lindley L .J . in the Emma Silver case, haB
no very definite m eaning.”
•» 5th ed., p. 346.
70 Erlanger v. The New Sombrero Phosphate Co. (1878) 8 App.Cas. 1218, 1268.
71 See also Palmer, Company Precedents, 17th ed., Part 1, p. 22.
72 See South Missouri Pine Lumber Co. v. Crommer, 202 Mo. 504, 101 S .W . 22
(Sup.Ct. Miss. 1907).
73 Old Dominion Copper Mining <t Smelting Co. v. Bigelow, 203 Mass. 159 177,.
89 N .E . 193, 201 (1909).
508 The Law Quarterly Review [V ol . 86

the incorporation by attracting the investment of capital in its

securities and providing it with the commercial breath of
life . .
Generally, most of the American cases hold the same view and
describe the promoter as one who alone or with others undertakes to
form a corporation and to procure for it the rights, instrumentalities
and capital by which it is to carry out the purposes set forth in its
charter, and to establish it as fully able to do its business.74
The American authors adopted a similar description. The Corpus
Juris Secundum states that a promoter is one who undertakes to
form a corporation and to establish it as fully able to do its business.
Whether or not one is a promoter is dependent on his actions and his
true relation to the corporation.75 According to Ehrich 76 a person
may be said to be a promoter of a corporation if before its organi­
sation, he directly or indirectly solicits subscription to its stock, or
assumes to act on its behalf in the purchase of property, or in the
securing of its charter, or otherwise assists in its organisation.
In view of the current renewed interest in Britain's entry into
the Common Market I shall conclude this analysis of the promoter
with a brief comparative study of European practice and the
American Securities Exchange Commission and their attempts at
definition.
The continental Codes attempt a more precise definition of the
promoters, who are called “ founders.” Under some legislations,
there are formal criteria for the definition of the term.

A. Belgium
The Belgian Code de Commerce (1873, Titre I X , ss. 31-82) pro­
vides that in the case where a corporation is formed by personal
appearance (or by power of attorney) all those who appear before
the notary are considered as promoters of the corporation. A cor­
poration can also be formed by signing a memorandum before the
notary and publishing it as a draft (project). All those appearing in
this memorandum will be considered as promoters of the corporation.

B. Germany (West)
The German law prescribes a formal criteria for the definition of
the “ founders ” (Gruender). The German Commercial Code of

74 Tulsa Tribune Co. v. Commissioner of Internal Revenue, 58 F. 2d 937, 942

(C.C.A. 10th Cir. 1932); Henderson v. Plymouth Oil Co., 131 A. 165 (Ch.Del.
1925), 16 Del.Ch. 347, 141 A. 194 (Sup.Ct. 1928).
75 18 C.J.S. Corporations, para. 119 et seq.
74 Ehrich, M. W ., The Law of Promoters (Albany N .Y ., 1916).
O ct . 1970] Who is a Company Promoter? 509

1897 (s. 187), the “ Handelsgesetzbuch,” and the new Corporation

law of 1965 (Aktiengesetz)77* provide that those shareholders who
have prepared the Satzung (Articles of Association) of the company
are the “ Gruender ” of the company.7* This technical test makes
the identification of the promoter an easy task. Those who draw
up the articles must sign them, and full particulars about those
who make their contribution other than in cash must be specified
in the articles and other documents of incorporation.

C. France
The French Companies Law of 1867 states (Art. 42, para. 2.)
that the promoters (“ Fondateurs ” ) are liable to the shareholders
and third parties in case of nullity of the formation if it is owing to
their (the “ Fondateurs ” ) fault. Other provisions regarding the
promoters relate to the declaration. After the subscriptions have
been contracted and the required payment made, a declaration is
drawn up to the effect that the entire cash capital of the company
has been subcribed for and that the statutory one-quarter cash pay­
ment has been made. Such a declaration must be made by the
promoters. If there are several founders, all of them must sign the
declaration.7’ The law, however, does not define the “ fondateur ”
and the courts have taken a wide view, which can be compared to
the English one. Identifying the founder of a corporation is, there­
fore, a question of some difficulty.
The French Law, like the other continental Laws, discussed
above, finds the solution in a test which is more or less a technical
one.
Ripert, summing up the judges’ opinion says:
“ Le fondateur est la personne qui, prenant l’initiative de
cr£er la soctete, se charge de r£unir les associ^s et les capitaux
et remplit les form ality l^gales n6cessaires pour arriver a la
constitution de la society.” 80*

Generally speaking, promoters are the persons who drew up the

by-laws and signed them in the ostensible capacity of founders,
or signed the declaration of subscription in the same capacity.*1

77 A similar definition was given in the former Act o f 1987. Reichsgesetzblatt I

107, amended R G B L I 588, 1170, s. 21 (hereinafter: A K T G ).
7« A K T G , § 28.
7» Conr de Cassation (Supreme Court) Oct. 30, 1928 (1929), Journal des SociiUs
34, Sirey 1929, V ol. 1, p. 120. I f the declaration is not signed by all the pro­
moters, all the acts done will be void.
*° Ripert, Droit Commercial (40fh ed., Paris, 1959), p. 461.
, l Church, E . M ., Business Association under French Law (London, 1960), p. 198.
See also L evy, Private Corporations and their Control (London, 1950), V ol. 1,
p. 436; P ic, des SociiUs Commerciales (2nd ed., 1925), Vols. 1-3, p. 840.
510 The Law Quarterly Review [V ol . 86

The founders who sign the declaration are the promoters of the
company, whether they have taken official title of founders or
not. Those who authorised or caused the formation are also deemed
to be promoters.82
The French courts provided some more yardsticks to identify
the promoters so as to include those who conceived the idea of the
enterprise; who carried out the process of its formation; who, in
their own names or through agents or men of straw, drew up and
signed the by-laws, solicited subscriptions and collected payments.
But as in the English law, where the legal liability of the promoter
is involved, the courts have made the category of founder a
broad one, including persons who have not played any sort of
overt role in the formation of the company but who have nonethe­
less actively participated in the formation.83*
One cannot draw a general rule from the above cases. It may
be said, however, that the term is used to designate the real
promoters of the corporation, those who actually were responsible
for its formation. To this, the courts provided a technical test
saying that those who drew up the by-laws and signed them will
be regarded as promoters.

D. The United States ( The Securities Act)

In the United States, the Securities Act 1988 is a special
Federal Code governing the issue of securities. The Act includes
a very broad definition of the term “ promoter,” which applies, of
course, only to the provisions of this special code and cannot be
regarded as a general definition of the term. Under rule 405, the
term includes any person (a) who “ acting alone or in conjunction
with one or more other persons, directly or indirectly takes
initiative in founding and organising the business or enterprise of
an issuer,” or (b) who in that connection receives, in consideration
of services or property or both, 10 per cent, or more of any class
of securities of the issuer or of the proceeds from the sale of any
class of securities otherwise than solely as an underwriting com­
mission or solely in consideration of property.
The Securities and Exchange Commission has held that one
need not take the principal initiative in the organisation of a cor­
poration in order to be a promoter.8* The Commission has
broadened the term to a scope inclusive of almost any person who

82 The same liability is imposed upon shareholders who make contributions in

property even if they cannot be regarded as promoters. (Act of 24 July, 1867,
Art. 42, para. 2.)
83 Cass. July 21, 1890 (1891) Revue des Sociitis 9 ; Cass. June 11. 1888, Revue
des Sociitis 460.
88 Snow Point Mining Co., 1 S.E .C . 311 (1936).
O ct . 1970] Who is a Company Promoter? 511

in any way participates in or contributes to the formation of the

corporation, directly or indirectly.
The Securities Act gives a right of action for damages to
purchasers of a security which has been sold under a registration
statement which contains an untrue statement or omits to state
a material fact necessary to avoid a misleading meaning, not
only against a promoter, but also against signers of the registration
statement,85*accountants who prepare the statements, underwriters,
or any party who controls any of the aforementioned,88 may be held
jointly and severally 8T liable by the purchaser.

9. C o n c l u sio n s

Is there any precise definition of the term “ promoter ” in its

legal and business application to companies ? Can one find a de­
finition according to which a special group of people would be
regarded as promoters and no one else? None of the judicial pro­
nouncements on the subject can be regarded as statements or
definitions. When it was suggested before the Cohen Committee,
that the term “ promoter ” should be defined, Cohen J .’ s answer
was that:
“ If you attempt to give a definition, you may easily limit,
instead of doing what I think you have in view, namely,
expand the scope of what is promotion, and someone might
escape liability who ought to be brought within the ambit,
because you cannot amend the Act every day.” 88

The English law intentionally refuses to define the term and

therefore, care must be taken not to be misled by words.
Owing to the ambiguity in the meaning of the word “ promoter,”
and the difficulty of defining the promoter’ s exact relation to the
company he enables to be formed, it is unsafe to say that any
particular person was a promoter of a particular company, and
then to decide that he is liable to account to it as if he had been
its trustee. The question in each case must be, what has the so-
called promoter done to make himself liable for the claim made
against him ? What fraud or breach of trust has he committed ?
And only then may the courts impose on him the duties of
promoters.

85 The registration statement must be signed by each issuer, the principal officers
and the majority of the board of directors (or persons who perform a similar
function). 15 U .S.C ., para. 77. F (1946).
8* 15 U .S.C ., para. 770 and k(a) (1946). See Comment in (1951) 60 Tale L .J . 311,
313 328
•» 15 U .S .C ., para. 77K (f) (1946).
88 Cohen’s Committee, Minutes of Evidence, Q.7359.
512 The Law Quarterly Review [V ol . 86

Nevertheless it is not a pure question of fact which may be

decided only by the trial judge. The court of appeal may intervene
and draw other conclusions than those of the courts below. It is a
judicial inference drawn from the facts. No hard and fast meaning
can be said to attach to the term. The continental systems found
the liability on a technical test and persons who are acting in some
specific way would be regarded as promoters. The English and
American judges do not follow this view, but on the other hand, do
not suggest any definite test.
J o s e p h H. G r o s s .