FACULTY OF LAW

L.L.B 3.1

Law of Business Association

NAME REGISTRATI CAMPUS
ON
NUMBER
JAPHETH OGWENO ALANDE G34/143294/2021 Parklands Evening

MARY NJERI GATAKAA G34/141700/2021 Parklands Evening

BRIAN WAMBUGU KATIKU G34/141572/2021 Parklands Evening

DULMAR FARAH G34/143592/2021 Parklands Evening

CALVIN MAURA G34/142049/2021 Parklands Evening

 Promoters
Those are the natural persons who come up with the idea of forming a company. Legally they
are called Promoters of a company.
From the words of Lindley J in the case of 1 Emma Silver Mining Co. V Lewis 4 C. P. D. 396
(I879): In this case, there was a commission paid to the company along with shares as part of
the contract but this was never disclosed. The undisclosed shares were owed to the company
hence a dispute later concerning these undisclosed shares.
This has well been expounded as follows:
“As used in connection with companies, the term promoter involves the idea of exertion to get
up and start a company (floating it).
These are the people who come up with the prospectus among other ideas that enable the
company to be formed.
In the case of 2Tracy v Mandalay (1953) 88 CLR 215 where there was a scheme with
shareholders to profit. Land was given to the company which was never used. It was therefore
held that everyone who took part owed duties to the shareholders of the first company and
hence the contract was rescinded.
Facts about the case.
 Mandalay Pty Ltd (Mandalay) was incorporated to acquire a parcel of land at Potts Point to
build and manage houses, restaurants, and office spaces.
 Mandalay alleged that various people who had been associated with Mandalay had breached
their fiduciary duties by participating in a scheme where Mandalay purchased land shares at
inflated prices. This produced significant gains for these people.
 Many of these people were not openly involved in forming Mandalay or the suspected
transactions.

The courts were to decide on the following facts.

 Were the people who were profiting from the non-disclosure who were not actively involved
in Manadaly’s formation promoters?
 Was rescission available

The courts held that

 The High Court held that non-active participants in the formation process may be promoters.
 In the absence of approval by an independent board after full disclosure, sales by a promoter
to a company formed by him are in the same position as any other sales by a trustee of his
property to a person towards whom he has a fiduciary relationship.
 These kinds of sales are voidable at the option of the purchaser, but if the purchaser decides to
firm the transaction, he must affirm it according to its terms.

1
Emma Silver Mining Co. V Lewis 4 C. P. D. 396 (I879
2
Tracy v Mandalay (1953 ) 88 CLR 215
 Rescission was not available to Mandalay, but the promoters were liable to repay Mandalay
the profit gained by paying equitable damages.

Promoters are well known for the following roles.

3
Companies Act 2015 clearly defines a promoter and includes promotional activities.
Promotional acts usually include:
a) Preparation of the Memorandum and Articles of the proposed company
b) The appointment of the first directors
c) Preparation of the prospectus
d) Negotiating the preliminary contracts
e) Paying the preliminary expenses etc.
Further in the case of Cockburn C.J in 4Twycross v Grant (1877) 2C.P.D. 469: It was further
advanced that “A promoter, I apprehend, undertakes to form a company regarding a particular
project and set it going and who takes the necessary steps to accomplish that purpose.
In this case, the action was brought before the court by the plaintiff under the company’s Act
of 1864 to recover the amount paid by him on certain shares taken by him in the company
during incorporation on grounds of fraud from the defendants in this case who were the
promoters of the company arguing they had omitted prospectus of some pre-incorporation
contracts. It was found out that these contracts were material and needed to be brought to the
attention of the shareholders. It was held that the defendants (Promoters) were liable in this
entire process

Types of Promoters
There are 4 types of promoters to companies.
Professional Promoters

Professional Promoters: Professional promoters are people who are specialists in promoting
new business ventures

Professional promoters initiate all the steps in establishing a new company; they have years of
experience in promoting various businesses, and with that experience, they promote a company
professionally.

Professional promoters have the promotion of companies as their occupation. Professional

promoters are mostly not directly connected with any specific company because they have an

3
Companies Act 2015 Laws of Kenya
4
Twycross v Grant (1877) 2C.P.D. 469
 occupation as promoters for various other companies. They are connected to a specific
company only at the time of promotion.

Once the professional promoters are done with the promotion of the company, they pass on the
management of the company to their owners or shareholders, and then they move to another
new business venture or another company to promote it.

These professional promoters may be people like engineers who may have the concept and
engineering design of a company and the details of what needs to be done. The other are
lawyers and educational experts who may have an idea of a school a month. These are
professionals in their rights who may decide to promote a company.

 Occasional Promoters:

Occasional promoters are not involved in the promotion work of a company regularly, and they
do not have promotion as their occupation.

Occasional promoters do not promote a series of companies from time to time; they promote
only a limited number of companies that they wish to promote.

There is a group of promoters like advocates, and financial advisers, who may offer occasional
support to the starting of a company.

These groups of promoters are only available on request to play a certain role then they move
on in their line and the company proceeds with its processes.

 Financial Promoters:

Certain financial institutions sometimes aid new business ventures by bringing them into
existence, and they become their promoters and do the promotion of the company as a normal
promoter would.

There are those financial Institutions that offer both financial support and ideologies to several
companies and this is called promotion.

To bring a company to life requires financial strength this is what many financial Institutions
offer hence they are promoters.

They may provide both management and financial expertise in the process. Sometimes getting
the financial knowledge to start a company requires certain expertise, especially in the infancy.
Entrepreneurial Promoter

The role of an entrepreneur is that of an initiator and a promoter.

The entrepreneur is also a promoter, as he does all the initial work just like the promoter, like
finding the correct members for the business, entering into the contract in his name for the sake
of the company, and bringing the business or the company into existence.

Individuals who come up with business ideas and move forward to form them are promoters.

They undertake all that is required to bring the company to life.

 The likes of Tata and Bilra companies are a result of entrepreneurial promoters.
These are people who came into the business with highly entrepreneurial business
concepts but did not just sit and see their business ideas grow through someone else
but they went ahead and actualized it. Became the owners and saw the business
through all stages. In other words, they had their hands in the cookie jar.

In the case of Whaley Bridge Calico Printing Co Ltd V Green 1879

“The term promoter was defined further in that it is not of law but of business it usefully sums
up in a single word some business operations familiar to the commercial world by which a
company is generally brought into existence. Although company law recognizes the role played
by a promoter the term remains ill-defined and so does the promoter’s relationships with the
company information. He is therefore described as an illegitimate child of the law; actively
known but formally ignored. In other words, the period of promotion is not a legal period but
that of business.

To further clarify more about a promoter is not to say that a promoter is not an agent of the
company information as it does not legally exist. This is because, at common law, a person
cannot be an agent for a non-existing principal as it was held in 5Kelner V Baxter 1866 LR 2
CP 174
In this case, it was held by the bench that a promoter is also not a trustee of the company
information as the beneficiary does not exist.

6Electric Palaces Ltd V Baines 1914

It was held in this case that Promoters thus stand in a fiduciary position concerning the company
in formation. In the words of Lord Cairns in 7Erlanger v New Sombrero Phosphates Co. (1878)

55
Kelner V Baxter 1866 LR 2 CP 174

6
Electric Palaces Ltd V Baines 1914
7
Erlanger v New Sombrero Phosphates Co. (1878) 3 A.C. 1218
3 A.C. 1218 (The Sombrero case) are instructive, “They stand in my opinion, undoubtedly in
a fiduciary position [as] they have in their hands the creation and molding of the company. This
is an equitable relationship based on trust confidence and good faith; it imposes upon the
promoters certain equitable or fiduciary obligations”
In this case, the promoters of a company sold a lease to the company at twice the price paid for
it without disclosing this fact to the company. It was held that the promoters breached their
duties and that they should have disclosed this fact to the company’s board of directors
The plaintiff sought orders to compel the defendant to honor its obligations under a contract.
The sole beneficial owner of the plaintiff company was Martin Bould, a property developer
and the promoter of G.H. Ltd., the defendant company, which had been formed to buy and
develop land into 12 high-quality apartments. The company was to be half-owned by the
vendors of the site and half by subscribers to be found by Mr. Bould. Only when G.H. Ltd. was
fully subscribed and contracts of sale made for all 12 apartments was the development to go
ahead.
Mr. Bould himself subscribed to one-fifth of the shares in the company and, through the
plaintiff company, agreed to purchase one of the principal apartments which he began to alter
and improve. When the plaintiff company made this agreement, he was the sole director of
G.H. Ltd. but he neither recorded his interest in the plaintiff company, informed the prospective
shareholders, nor, when other directors were appointed, revealed it to them. On the contrary,
he consistently lied about his involvement with the plaintiff company and ultimately admitted
to a minority shareholding but never to more than a 30% interest. After this admission, the
other subscribers did not immediately challenge Mr. Bould”s purchase of the apartment but as
their relationship with him deteriorated, the board of directors of the defendant company
purported to rescind the purchase agreement on the ground of Mr. Bould”s failure to disclose
his financial interest in the plaintiff company. To this end, notices of rescission were issued to
that company which then brought the present proceedings to challenge the rescission.
At no time until giving evidence did Mr. Bould reveal that he had a 100% interest in the plaintiff
company.
The plaintiff sought (a) a declaration that the notices of rescission were ineffectual; (b) in the
alternative, a declaration that the defendant was estopped or prevented from rescinding the
contract; (c) an order to compel the defendant to perform its obligations under the contract; and
(d) damages in respect of any loss it suffered as a result of the defendant’s breach.
The defendant counterclaimed, inter alia, for (a) a declaration that it was entitled to rescind;
and (b) in the alternative, damages for conspiracy.
It was held that
(1) As a director of the defendant, Mr. Bould had a duty not to put himself in a position where
his interests might conflict with those of the defendant. As a promoter, he had a duty to disclose
to the defendant any interest he had in any transaction entered into by the company. Even
though at the time the plaintiff contracted to purchase the apartment from the defendant, the
defendant” 's shareholders had not yet been confirmed, Mr. Bould still had a duty to notify
potential shareholders of his interest in the plaintiff in the offering memorandum or by giving
identifiable investors notice in some other way before they committed themselves to the
venture. Moreover, as a promoter, Mr. Bould could not relieve himself of his duties and general
equitable obligations, nor could he deprive the defendant of its remedy of rescission or any
other remedy by drafting such provisions into regulations or articles of association of the
company. He had set out to deceive the shareholders and subsequently the other directors of
the defendant.
(2) Since the directors and shareholders of the defendant might have acted differently had they
known the extent of Mr. Bould” 's interest in the plaintiff, that information was a material fact,
knowledge of which was essential to the affirmation of the contract. It followed that the conduct
or representations of the directors and shareholders of the defendant which affirmed the
contract did not do so, since they never knew of Mr. Bould” 's full interest in the plaintiff until
the hearing of the trial; nor could their actions be relied upon as creating an estoppel since they
were induced by the concealment of a material fact.
(3) Although it was conceded that the apartment, the subject matter of the contract, had been
altered in its design, there was no bar to rescission since restitutio in integrum was still possible
as the substantial identity of the apartment remained the same. As it was prepared to accept the
apartment in its altered state, the defendant was therefore entitled to exercise the right it
undoubtedly had to rescind the contract and it would be artificial to treat the plaintiff as separate
from Mr. Bould for the granting of the remedy. Moreover, the fact that Mr. Bould had otherwise
expended a great deal of time and money on the apartment should not be allowed to affect the
substantial justice of the case or its overall outcome. Since he was not paid by the plaintiff for
his time and expenditure, it would be wrong to order the defendant to compensate him
personally in this respect. The court would, however, order that the defendant compensate the
plaintiff by repaying all instalments so far paid together with interest and all its expenses related
to the alteration.

FIDUCIARY DUTIES OF A PROMOTER

1. Duty to disclose secret profits. In Gluckstein v Barnes [1900] AC 240, Gluckstein and
3 others allegedly purchased property for £140,000 and then promoted a company to
which they on-sold the property for £180,000. These persons then made up the first
directors of the newly formed company. They disclosed the £40,000 profit, but not
another £20,000 profit as they originally purchased the land for £120,000 and not
£140,000. The question was whether the promoters breached their fiduciary duties to
the company. It was held by the House of Lords that the syndicate had breached their
fiduciary duties and were liable to account to the company for the secret profit that they
had made as the company lacked independent directors.

2. Duty to keep proper accounts. Promoters are bound to explain the application of
monies or assets which come into their hands from the date they become promoters.
The duties of promoters to keep proper accounts involve establishing sound financial
management practices, ensuring compliance with accounting standards, and promoting
transparency in the company's financial reporting. Adhering to these duties contributes
to the company's overall financial health and facilitates responsible corporate
governance

3. Duty to disclose interest in transactions and all the material facts. As fiduciaries,
promoters are bound to disclose personal interest in transactions to avoid conflict of
interest. Any secret profit made must be disclosed failing which the promoter is liable
 to account for the same and the contract may be rescinded by the company. Such
disclosure may be made to an independent board of directors or all members of the
prospectus.

3.1. In the Sombrero Case, persons who were in the process of forming a company
bought a lease in the West Indies for £55,000 to mine phosphate deposits. They sold
the lease to the company for £110,000 a fact that they did not disclose. The facts
came to light 8 months later and all the directors were removed from office. The
company sought to rescind the contract for the non-disclosure and it was held that
it was entitled to do so. Whereas disclosure to the general body of shareholders is
sufficient, disclosure to a few persons who constitute the initial membership of the
company is insufficient.8

3.2. In Gluckstein V Baines (1900) where the plaintiff and four others bought certain
premises for £140,000 and sold them to a company, they were forming for
£180,000. The company had no independent board of directors. Although the
prospectus disclosed the £40,000 profit, it did not disclose a further £20,000 the
promoters had made on the premises. In liquidation, the liquidator sought to recover
£6,341 from Gluckstein as 3 his share of the secret profit. It was held that he was
liable to account for the non-disclosure. In the words of Lord Macnaghten:
“Disclosure is not the most appropriate word to use when a person who plays many
parts announces to himself in one character what he has done or is doing in another...
to the intended shareholders there was no disclosure at all an elaborate system of
deception was practiced on them.”9
3.3. If the promoter sells his property to the company, he is not bound to disclose the
price he paid for it and all he needs to do is to declare he is the owner. 10 This is
generally considered a good governance practice for a promoter who sells their
property to a company to provide transparency regarding the transaction but he is
not bound to disclose the price. Transparency helps avoid conflicts of interest and
ensures fair dealing between the promoter and the company

3.4. Promoters have a duty of disclosure to an independent board of directors.11 The

duty of disclosure is a fundamental aspect of the relationship between promoters
and the independent board of directors. This duty ensures that the board is well-
informed, can exercise independent judgment, and can fulfill its oversight
responsibilities effectively. Promoters should approach their duty of disclosure with

8
Erlanger v New Sombrero Phospate Co (1878) 3 App Cas 1218 HL;
9
Gluckstein v Barnes [1900] AC 240, HL

10
Omnium Electric Palaces Ltd v Baines (1914)
11
Erlanger v New Sombrero Phospate Co (1878) 3 App Cas 1218 HL
 a commitment to transparency and the best interests of the company and its
stakeholders.

3.5. Duty to ensure disclosure to original shareholders if there is no independent

board. In Salomon v Salomon & Co Ltd [1897] AC 22, Mr. Salomon was a
shoemaker in England. His sons wanted to become his business partners so he
converted his business into a limited company (A Salomon & Co Ltd). A Salomon
& Co Ltd purchased Mr. Salomon’s business for above market value. His wife and
his five children became subscribers. The two eldest sons became directors of the
company and Mr. Salomon was allocated 20,001 of the company’s 20,007 shares.
The company gave Mr. Salomon £10,000 in debentures and received an advance of
£5,000 from Edmund Broderip, on the security of the debentures. Salomon’s
business eventually failed and it defaulted on its interest payments on the debentures
(half held by Broderip). Broderip sued to enforce his security as the company went
into liquidation. Broderip was repaid his £5,000 and this left only £1,055 company
assets remaining. Salomon claimed this amount under his retained debentures
leaving nothing for unsecured creditors. The company’s liquidator argued that
Salomon should be responsible for the company’s debts but Salomon sued for
the £1,055. The issue was whether the formation of A Salomon & Co Ltd was
intended for fraud to defeat creditors. The matter was determined but finally, an
appeal landed in the House of Lords where it was held that the Companies Act
1862 (UK) did not require shareholders to be independent of the majority
shareholder. A Salomon & Co Ltd was legally constituted and it was not the role of
judges to read limitations into the statute in a manner that they considered
preferable.
3.6. Disclosure in prospectus. Disclosure to original shareholders is deemed
insufficient if they are not independent12

4. Duty to avoid conflict of interest. Promoters ought to take reasonable care in ensuring
there is no conflict of interest in all transactions between them and the company.
Conflicts of interest can undermine the integrity of decision-making processes and
potentially harm the interests of the company and its stakeholders. The duty of
promoters to avoid conflicts of interest involves transparency, disclosure, fair dealing,
and adherence to ethical standards. By actively addressing and managing potential
conflicts, promoters contribute to the integrity and ethical governance of the company,
fostering trust among stakeholders.

5. Duty to exercise reasonable care and skill. This is a fundamental aspect of the
fiduciary responsibility of promoters in the formation and organization of a company.
This duty requires promoters to act with diligence, competence, and prudence in
carrying out their responsibilities. Promoters are bound to act in good faith in what they

12
Gluckstein v Barnes [1900] AC 240
 consider to be the best interest of the company in all their actions. By fulfilling the duty
to exercise reasonable care and skill, promoters contribute to the responsible and
effective management of the company, laying the groundwork for its long-term success.
It is important for promoters to seek professional advice when needed and to act with
prudence, diligence, and competence throughout the company's formation and early
stages of operation.
6. Common law or General Duties of Promoters
a) Determining and settling the company name. The process of determining and settling
the company name is a significant responsibility for promoters as they lay the
foundation for the entity. This duty involves selecting a name that aligns with legal
requirements, represents the business appropriately, and avoids conflicts with existing
entities.
b) Requesting or causing the registration of a company. Promoters play a pivotal role
in requesting or causing the registration of a company, and their duties involve legal
compliance, document preparation, decision-making on key aspects of the business,
and effective communication. Fulfilling these responsibilities ensures a smooth and
legally sound registration process for the new business entity.
c) Preparing or causing the preparation of the constitutive documents. Promoters play
a critical role in preparing or causing the preparation of constitutive documents, and
their duties include legal compliance, defining the company's structure and purpose,
protecting shareholder rights, and ensuring clarity and precision in the documents.
Diligent attention to these responsibilities contributes to the establishment of a well-
structured and legally sound business entity
d) Meeting the preliminary expenses. Promoters play a crucial role in meeting the
preliminary expenses of a company. Their duties encompass budgeting, allocating
capital, ensuring legal compliance, transparent financial management, and effective
resource utilization to lay a strong foundation for the successful launch of the business.
e) Securing the services of directors. Securing the services of directors is a critical
responsibility for promoters. It involves a strategic approach to identifying and
appointing directors who bring diverse skills, expertise, and perspectives to the board,
ultimately contributing to the effective governance and success of the company.
f) Preparing the prospectus if necessary. A prospectus is a legal document that provides
information about the company, its operations, financial condition, and the securities
being offered for sale. The preparation of a prospectus is a significant duty for
promoters, and careful attention to legal compliance, accuracy of information, and clear
communication is crucial. A well-prepared prospectus enhances transparency and
instils confidence among investors, contributing to the success of the securities
offering.
g) Ensuring that the company has an independent board of directors. Promoters have a
significant duty to ensure that the company has an independent board of directors, as
 an independent board is crucial for effective corporate governance and the protection
of stakeholders' interests. Promoters contribute to the establishment and maintenance
of an independent board of directors as well as fostering a governance structure that is
aligned with ethical standards and best practices. This, in turn, enhances the credibility
and sustainability of the company.
h) Acquiring assets for use by the company. Promoters play a crucial role in acquiring
assets for use by the company. Their duties encompass strategic planning, financial
management, legal compliance, negotiations, and considerations for the seamless
integration of assets into the company's operations. Diligence in these responsibilities
contributes to the overall success and sustainability of the business.
i) Entering into business contracts on behalf of the company. Promoters bear the
responsibility of entering into business contracts on behalf of the company, and their
actions in this regard significantly impact the company's success and stability. Diligent
negotiation, legal compliance, risk assessment, and transparent communication are
essential elements of this duty.

7. Statutory duties of promoters- duties under the Companies Act 2015:

a) Promoters must act within powers13 Promoters, in a business or organizational
context, have a duty to act within the powers granted to them by the relevant legal
and regulatory framework.
b) Promoters have to promote the success of the company14 The duty to promote the
success of the company is a fundamental principle in corporate governance. This
duty places an obligation on promoters and directors to act in a manner that
enhances the long-term prosperity of the company.
c) Promoters have to exercise independent judgment15 The duty to exercise
independent judgment is a crucial aspect of corporate governance, particularly for
promoters and directors of a company. This duty emphasizes the importance of
making decisions impartially, free from undue influence, and in the best interests of
the company.
d) Promoters must exercise reasonable care, skill, and diligence16 The duty to exercise
reasonable care, skill, and diligence is a fundamental responsibility of promoters
and directors in the corporate governance framework. This duty underscores the
importance of applying a reasonable level of expertise, attention, and prudence
when making decisions and overseeing the affairs of the company.
e) Promoters must avoid conflicts of interest17 The duty to avoid conflicts of interest
is a fundamental ethical and legal obligation for promoters and. This duty

13
Companies Act 2015 Section 142
14
Companies Act 2015 Section 143
15
Companies Act 2015 Section 144
16
Companies Act 2015 Section 145
17
Companies Act 2015 Section 146
 emphasizes the importance of ensuring that personal interests do not interfere with
or compromise the objective decision-making and loyalty owed to the company.
f) Promoters have to accept benefits from third parties18 The duty of promoters to
accept benefits from third parties is a nuanced aspect of corporate governance and
business ethics. Generally, promoters need to approach such situations with caution
to ensure that their actions are transparent, ethical, and in the best interests of the
company

Duties of a Promoter:

A promoter is someone who was a party to the preparation of the Company Prospectus or on
the particulars. Ppromoter plays a crucial role in the formation of a company, typically taking
the initiative to conceive, organize, and bring the company into existence. Cockburn C.J in
Twycross v Grant (1877) 2C.P.D. 469:
“A promoter, I apprehend, is one who undertakes to form a company with reference to a
particular project and set it going and who takes the necessary steps to accomplish that
purpose.
A promoter is not considered an agent of the company during its formation since, legally, the
company does not yet exist. This is in accordance with common law principles, as established
in the case of Kelner v Baxter, where it was determined that a person cannot act as an agent
for a principal that does not legally exist.

Furthermore, a promoter is not regarded as a trustee for the company in formation, primarily
because the intended beneficiary, being the company, has not come into existence. This
principle was affirmed in the case of Omnium Electric Palaces Ltd v Baines.
The duties of a promoter can generally include:

 Duty of Good Faith: The promoter must act in good faith and in the best interests of
the company being formed.
 Duty to Disclose Information: Promoters are obligated to provide full and accurate
information to potential investors and the company.
 Duty of Care and Skill: Promoters are expected to exercise reasonable care and skill in
carrying out their responsibilities.
 Avoidance of Conflicts of Interest: Promoters should avoid situations where their
personal interest’s conflict with the interests of the company. Any potential conflicts
should be disclosed to relevant parties.
 Fiduciary Duty: Promoters owe a fiduciary duty to the company and its future
shareholders. This duty requires the promoter to act in the best interests of the
company and its shareholders.

18
Companies Act 2015 Section 147
Rights of a Promoter:
The rights of a promoter can be outlined in the agreements or contracts they have with the
company they are promoting. Common rights may include:

 Right to Be Compensated: Promoters typically have the right to be compensated for

their efforts in promoting and organizing the company. This compensation may come
in the form of fees, shares, or a percentage of the company's profits
 Right to Recover Expenses: Promoters are usually entitled to recover reasonable
expenses incurred during the promotion and incorporation of the company. These
expenses may include legal fees, travel costs, and other out-of-pocket expenses.
 Right to Enter Contracts on Behalf of the Company: While organizing the company, a
promoter may have the authority to enter into contracts on behalf of the company
before its formal incorporation. However, this authority should be exercised with care
and in the best interests of the future corporation.
 Right to Profit from the Venture: In certain cases, promoters may negotiate the right
to profit from the success of the company they are promoting. This could include
obtaining shares at a favorable price or receiving a percentage of the company's
profits.

A promoter is an individual or entity responsible for conceiving the idea of forming a

company. Promoters can be individuals, firms, associations of persons, or companies. Various
types of promoters exist within the context of company formation:

Professional Promoter: An expert in business promotion during its inception, transferring

ownership to shareholders upon market establishment.

Financial Promoter: Invests capital, holds a significant company share, and focuses on
assessing the market's financial conditions for opportune company formation, especially in
banking or financial institutions.

Managing Promoter: Assists in company formation and gains managing rights within the
company post-formation.

Occasional Promoter: Engaged in floating companies but not on a routine basis, often
overseeing multiple enterprises and participating only in critical business matters.

Functions of a Promoter:

A promoter performs several functions in company formation, from conceptualizing the

business idea to executing the necessary steps to bring the idea to fruition. Some of these
functions include:
Conceptualizing the idea of company formation.
Evaluating the feasibility and profitability of the business idea.
Organizing and collecting resources to convert the business idea into reality.
Deciding on the company name, and establishing the contents of the Memorandum and
Articles of Association.
Determining the company's head office location.
Nominating individuals for vital company positions.
Preparing all required documents for company incorporation.
Deciding the company's funding sources and capital requirements.

Duties of a Promoter:
Promoters have specific duties towards the company, which include:
Disclosing any hidden profits earned during promoting activities.
Disclosing all material facts related to the company's business and formation.
Acting in the best interest of the company.
Disclosing all private arrangements and transactions to stakeholders.

Rights of a Promoter:
Promoters have rights that include:
The right of indemnity for hidden profits and false statements in the prospectus.
The right to reimbursement for preliminary expenses incurred in company establishment.
The right to remuneration unless there's a contract stating otherwise.
Liability of a Promoter:
Rights of a Promoter
The rights of promoters include the following:
Right of indemnity

Promoters are jointly and severally accountable for any hidden profits made by any of them
and false statements made in the prospectus. All the promoters are individually and equally
responsible for the company’s affairs. Thus, one promoter can claim the compensation or
damages paid by him/her from the other promoters.

Right of preliminary expenses

A promoter is entitled to reimbursement for preliminary expenditures incurred for the
company’s establishment, such as solicitors’ fees, advertising costs and surveyors’ fees.
Right of remuneration

A promoter has the right to receive remuneration from the company unless a contract to the
contrary. The company’s Articles of Association can also provide that the directors can pay an
amount to the promoters for their services. However, the promoters cannot sue the company
for remuneration unless there is a contract.

Promoters can be held liable for various actions, including:

 Making secret profits out of company deals.

 Being liable for damages due to false statements in the prospectus.
 Facing criminal liability for untrue statements in the prospectus.
 Being held liable for public examination of private company documents in cases of
alleged fraud.
 Promoters are individuals or entities responsible for conceiving and executing the idea
of establishing a business.
According to the Companies Act, 2013, an independent director should not have been a
promoter of the company. Any person or group initiating a business idea can become
promoters, regardless of whether they are the founders or provide capital and assistance.

The legal position of promoters is elaborated. Promoters are not trustees or agents but act in
a fiduciary capacity, undertaking actions and incurring costs for company incorporation. They
are liable for personal profits made in company deals.

The rights of a company promoter are varied and can be determined by statutes, contracts,
and case law.
Relevant Case Law
The following are some significant case laws that address or provide clarification on the rights
of company promoters:
Wycross v. Grant (1877)19: This case focused on the fiduciary duty that promoters owed to
the company, establishing that they have a fiduciary relationship with the company and must
act in the best interests of the company.
Whaley Bridge Calico-Printing Co v. Green (1880)20: This case addressed the duty of disclosure
that a promoter owed to the company, with the goal of highlighting the duty of a promoter
to disclose all relevant information.

19
2 CPD 469
20
5 QBD 109
Kelner v. Baxter (1866)21: Issue: This case dealt with the enforceability of contracts entered
into by promoters on behalf of a company yet to be formed. Outcome: It established the
principle that a company, once incorporated, can adopt and become bound by pre-
incorporation contracts. Milne v. Stephen (1895) AC 66: This case explored the enforceability
of pre-incorporation contracts entered into by promoters. The House of Lords held that a
company could adopt pre-incorporation contracts, making them enforceable.
Wallersteiner v. Moir (No. 2)22: Issue: This case involved an action for fraudulent
misrepresentation against promoters. Outcome: It demonstrated that a person claiming to
have been induced by a fraudulent misrepresentation of promoters can seek remedies,
including rescission or damages. Erlanger v. New Sombrero Phosphate Co (1878)23: This case
clarified the liability of promoters for secret profits.
These cases provide insights into various aspects of company promotion, including fiduciary
duties, disclosure obligations, enforcement of pre-incorporation contracts, and consequences
for fraudulent misrepresentations or secret profits by promoters. It is crucial to consult legal
professionals for up-to-date advice and guidance on specific cases or situations.

Liability of a promoter
Until a company has been incorporated it cannot contract or enter into any other act in the law.
Nor, once incorporated, can it become liable on or entitled under contracts purporting to be
made on its behalf before incorporation24, for ratification is not possible when the ostensible
principal did not exist at the time when the contract was originally entered.
When a promoter enters into a contract to purchase machinery for the new business being
promoted, to consider whether the promoter is personally liable is not a simple answer. Since
in some circumstances, personal liability can exist and in others, it cannot. Where the
corporation has been duly formed and the contract is entered into and executed by the promoter
in the corporate name, the promoter would not be personally liable since they have executed
the contract merely as an agent and not as a principal. If the corporation has not been formed
and the promoter enters into the contract in his or her name without referring to the corporation
with the thought of subsequently assigning the contract to the corporation, the personal liability
of the promoter will exist. Furthermore, preliminary arrangements will either have to be left to
mere “gentleman’s agreements” or the promoters will have to undertake personal liability. If
our local shoemaker is converting his business into a private company of which he is to be the
managing director and majority shareholder he will certainly not be concerned about having a
binding agreement with anyone. In such a scenario s draft sale agreement will be drawn up and
the main object of the company’s articles will be to acquire his business as a going concern and
to enter into an agreement in the terms of the draft already prepared and for identification
signed. When the incorporation is complete the seller will ensure that the agreement is executed
and completed. If promoters are arranging for the company to take over someone else’s

21
LR 2 CP 174
22
[1975] QB 373
23
3 App Cas 1218
24
Kelner v Baxter [1866] L.R 2. C.P. 174
business the seller will certainly and the promoters will probably, wish to have a binding
agreement immediately. In this event, the sale agreement will be made between the vendor and
the promoter and it will be provided that the personal liability of the promoters is to cease when
the company in the process of formation is incorporated and enters into an agreement in similar
terms.
A pre-incorporation contract is an agreement that is entered into by a promoter or promoters
on behalf of a company at a time when the company’s formation has not been completed by
way of registration. In Kelner v Baxter a group of promoters for a new hotel company, the
“Gravesend Royal Alexandra Hotel Company” (Gravesend) entered into a contract for wine.
This contract was purportedly on behalf of Gravesend, but Gravesend had not at that point been
registered. It was a “pre-incorporation contract”. Gravesend was eventually registered, but by
that stage, the wine had been consumed before the money had been paid. Gravesend soon went
into liquidation. The promoters, as Gravesend’s agents, were sued. The promoters argued that,
as Gravesend had been incorporated, the contract had subsequently been ratified and the
liability had passed to the company. The issue to be decided was whether the agents were liable
for the pre-incorporation contract post-ratification by Gravesend. The court of common plea
held that because the company did not exist at the time of the signing of the agreement it would
be wholly inoperative unless it was binding on the promoters. A stranger cannot, by subsequent
ratification, relieve the promoters from that responsibility of liability. A promoter can avoid
liability if a substitute agreement novice the original pre-incorporation contract25. Erle CJ stated
“…if the Gravesend Royal Alexandra Hotel Company had been an existing company at this time, the
persons who signed the agreement would have signed as agents of the company. But, as there was
no company in existence at the time, the agreement would be wholly inoperative unless it were held
to be binding on the defendants personally. The cases referred to … [explain that] where a contract is
signed by one who professes to be signing “as an agent,” but who has no principal existing at the time,
and the contract would be altogether inoperative unless binding upon the person who signed it, he is
bound …a stranger cannot by subsequent ratification relieve him from that responsibility. When the
company came afterward into existence it was a new creature, having rights and obligations from
that time, but no rights or obligations because of anything which might have been done
before. …There must be two parties to a contract, and the rights and obligations that it creates cannot
be transferred by one of them to a third person who was not in a condition to be bound by it at the
time it was made. The history of this company makes this construction to my mind clear. …It cannot
be supposed that [the agent] for a moment contemplated that the payment was to be contingent on
the formation of the company…”

Contracts entered in the name of the corporation. Contracts require the existence of parties
for it to be binding26. A company that has not yet been formed cannot be a party to a contract.
These contracts are considered void from the outset27. When a promoter executes a contract in
the corporate name in a way that makes it appear that the corporation has been formed when it
has not been. Many cases say that such a promoter is personally liable on the theory that a
person acting as an agent represents that principal exists, and the promoter is liable because of
misrepresentation. Other cases merely state that a person who purports to act as an agent for a
non-existent principal thereby automatically becomes a principal. The latter theory is based on

25
ibid
26
Adams v Lindsell (1818) 1 B & Ald 681
27
Newborne v Sensolid (Great Britain) Ltd. [1954] 1 Q.B. 45
contract and the former on tort and leads to the same result. These cases holding the promoter
personally liable when the corporation has not been formed often give the third party a windfall
since that person is usually not relying on the promoter’s credit when entering into the contract.
Rather they are relying on the corporation’s credit or on the possibility that the corporation will
do well and be able to pay off the obligation. A third person relying on the promoter’s credit
would usually require the promoter to guarantee the corporation's obligation. However,
virtually all courts in such a situation hold the promoter personally liable despite the potential
windfall. Therefore, A company cannot be bound by contracts made before it comes into
existence. Therefore, any contract purportedly made on its behalf before incorporation is not
enforceable by or against the company28.
A pre-incorporation contract cannot also be ratified by the company after its registration. The
court reasoning in Natal Land Co v Pauline Colliery Syndicate Ltd29 was that there is no explicit
consequence for ratification to be retrospective effect. If the company was allowed to ratify the
contract, then it contracts on the day the contract was formed30. This is impossible in practice
and this would be legally impossible. When a company wishes to revive such a contract then
it would need to enter into the contract afresh. In Black v Smallwood, the High Court of
Australia dealt with the liability of promoters for contracts made before a company’s
incorporation. the court determined that if a promoter enters into a contract on behalf of a
company yet to be incorporated, they may become personally liable unless the contract
explicitly states otherwise. The reason is that at law, there cannot be a contract with a non-
existent entity, which means the promoter essentially makes the contract in their capacity31.
Contracts refer to the fact the corporation is not yet formed. This would be where a contract is
executed by the promoter and a third party both aware that the corporation has not yet been
formed. The contract itself can reveal that very fact e.g. XYZ corporation is a corporation to
be formed or the promoter advises the third person that the corporation has not yet been formed
when the execution of the contract is in the corporate name. Liability hinges on the intent and
wording of the contract. If an attorney is called upon to draft a pre-incorporation agreement it
is relatively simple to ascertain the parties' intention and describe it in a written agreement in
terms so precise that there can be no cause for misunderstanding. If the promoter is to be bound
until the corporation adopts the contract, and then is to be released from liability, the contract
that specifically so provides should avoid late disputes32. A promoter may be personally liable
for a pre-incorporation contract if the language of the contract indicates this intent, or if there
is an implied personal commitment33.
The company is bound by pre-incorporation contracts via novation. The black's Law dictionary
defines “novation” as being the substitution or swap of two parties in a contractual agreement
that is formalized by novation. Novation, therefore, involves forming a new contract that is
substantively similar to the pre-incorporation contract, with all original parties agreeing to this

28
Natal Land Colonisation Co v Pauline Colliery Syndicate (1904) AC 120
29
(1988) BCLC 710
30
Phonogram Ltd v Lane, 1982. 1 QB 938
31
Ford, H.A.J., “Company Law: Liability of Promoters During Pre-incorporation Period,”[1967] 41 Australian
Law Journal 280.
32
Phonogram Ltd v Lane, 1982. 1 QB 938
33
Black v Smallwood (1966) 117 CLR 52
new contract34. A company can by implication accept the terms of a pre-incorporation contract
by its conduct post-incorporation as was established in the case of Howard v Patent Ivory
Manufacturing Co.35, where the case established that the rule of indoor management will not
be applicable if the person dealing with the company has slight knowledge about the lack of
authority of the person who is acting on behalf of the company. However, this would be
ineffective if it was entered or made by mistake as in the holding of Re: Northumberland
Avenue Hotel Co Ltd where the court held that a contract made by a promoter on behalf of a
company that was not yet formed was not binding on the company. The company could only
be bound if it adopted the contract after its incorporation establishing the principle that a
company is not bound by a contract made before incorporation unless it adopts it after.
Avoiding Promoter’s Personal Liability under Pre-Incorporation Contracts
There are several ways in which a promoter can avoid liability under a pre-incorporation
contract:
Express Provisions for Exclusion. Phonogram Ltd. v. Lane36 Fragile Management (Fragile)
was a company that was intended to be created to run a music group. Phonogram Ltd. (plaintiff)
agreed to pay £12,000 to finance the group. Phonogram made an initial £6,000 payment under
a July 1973 letter agreement with Fragile’s attorney, Brian Lane (defendant). The letter referred
to the contract being completed between Phonogram and Fragile, stated Phonogram’s
expectation that “you will undertake to repay us the £6,000” if the parties did not promptly
finalize the contract, and asked Lane to countersign and return the letter to Phonogram. Lane
did so. Phonogram paid the £6,000 via a check made out to Jelly Music Ltd., a subsidiary of a
company of which Lane was a director. Phonogram and Fragile ultimately failed to conclude a
contract, but Lane refused to return the £6,000, leading Phonogram to sue Lane. The trial court
ruled that Lane did not agree to be personally liable under the July agreement but that Lane
was personally liable under S 9(2) of the European Communities Act of 1972 because the
agreement purported to be made on behalf of an as-yet unformed company. Lane appealed,
citing the original French text of the European Economic Community (EEC) directive that
motivated the United Kingdom to adopt the act. Per Lane, under the directive, S 9(2) applied
only to contracts involving companies that were in the process of being formed, and Fragile
did not qualify because insufficient action had been undertaken to incorporate Fragile as of the
July agreement. The contract should explicitly state that the promoter will not be held
personally liable.
Signature as Confirmation Only. In Newborne v Sensolid (Great Britain) Ltd37, the plaintiff
company, Leopold Newborne (London), agreed to conclude a contract to sell goods to the
defendant buyers. Although, at the time when the contract was concluded, the plaintiff company
had not yet been incorporated. The court held that the promoter of a company who signs a
contract in the name of a company before it has been formed will be personally liable for the
contract unless there is an agreement to the contrary. The signature of the promoter as
confirmation of the contract does not relieve him of personal liability. In the case of BLACK v.

34
Re Empress Engineering Co. 1880, 16 Ch. D. 125 C.A.
35
(1888), 38 Ch. D. 156
36
[1982] QB 938
37
[1954] 1 QB 45
SMALLWOOD38, the court addressed the issue of the liability of individuals purporting to be
directors entering into a contract on behalf of a non-existent company. The appellants
purported to enter into a contract for the sale of land to a company that had not yet been
incorporated. Both parties believed the company had been formed, and the appellants sued for
specific performance after the company hadn't been incorporated. The Full Court reasoned
that the case was similar to a prior decision and dismissed the suit. The appellants' argument
included the contention that the respondents, as directors, should bear personal liability for
the contract. They also suggested that a supposed general rule states that an agent for a non-
existent principal is personally liable on the contract. However, the court rejected these
arguments, holding that the respondents didn't contract as agents on behalf of the non-existent
company but rather subscribed to the company's name and their signatures as directors in the
belief that the company existed. As a result, they could not be held personally liable for the
contract. The court ultimately dismissed the appeal, recognizing that the principles established
in the case of Newborne v. Sensolid (Great Britain) Ltd. (1954) applied to the current case.
The court also confirmed that the respondents should not be held personally liable.
Deferral of Agreement. The agreement must remain provisional until the firm formation is
common legal knowledge regarding pre-incorporation contracts.
Novation and 'Off the Shelf' Companies. The promoter can transfer any contractual promises
to an already incorporated 'off the shelf' company, or ensure novation occurs post-
incorporation.

Legal Position of a Promoter

A promoter is defined under39 defines a promoter as one who is a party to the preparation of
the prospectus or of the portion thereof containing untrue statements.
Legally a promoter is not an agent of the company he promotes but the English courts held that
the promoter stands in a fiduciary capacity to the company he promotes.
40
Erlanger was a French banker who bought the lease for the Anguilian island of “Sombrero”,
phosphate mining for £55,000. Erlanger then established New Erlanger Phosphate Co
(Phosphate), before selling Sombrero’s lease to Phosphate for £110,000 through a nominee,
One of Phosphate’s directors was the Lord Mayor of London, who was independent of
Erlanger’s initial group of founders. Two other directors were abroad, and the other directors
were the puppet directors of Erlanger. Due to Erlanger’s strong control over Phosphate, the
company was essentially an extension of Erlanger. Phosphate ratified the sale of the lease.
Many people invested in Phosphate due to Erlanger’s skills at promotion. Eventually, the
investors realized that Erlanger had sold the lease to Phosphate for double the price he had
bought it for, and Phosphate sued Erlanger for recession due to non-disclosure and an account
of profits.
Erlanger was a promoter of Phosphate. The House of Lords unanimously held that the
relationship between a promoter and a newly formed company attracts a fiduciary relationship
and as a promoter, he owed duties of good faith and honesty to the company. In his fiduciary

38
(1966) 117 CLR 52
39
Company Act section 45(5) (a)
40
Erlanger v New Sombrero phosphate company limited
relationship with the company, Erlanger should have declared any conflicting interests to the
company promoted and cannot make any “secret profits”. Lord Cairns stated, “Promoters stand
in my opinion in a fiduciary position they have in their hands in the molding and creation of a
company’’. A fiduciary relationship is one of pure trust and not drawn on statutory obligations
and therefore a promoter can also be referred to as a trustee of the company.
The relationship between the promoter and the company is an equitable one based on trust,
confidence, and good faith, which imposes certain equitable obligations on the promoter.
Legally a promoter must have done something or played a specific part in the existence of the
company and the mere intentions cannot suffice to refer to a person as a promoter.
The promoter acts as trustee of the company and hence has no legal rights in any capacity in
the company and hence has no legal redress as there is no company in place yet.
Promoters are personally liable for all the contracts made by them on behalf of the company
until the contracts are discharged and the company is fully functional as a legal person to take
over the liabilities of the promoter. The promoter is also liable to account for all the profits
including secret profits made by him without full disclosure of the company. In this regard, the
company can sue the promoter for undisclosed profits and recover the same with interest in its
legal capacity the company can rescind any contract with the promoter and can recover any
monies paid. Undisclosed profits Promoters also have to disclose personal profits that may
arise from their position. 41The profit of £40,000 was revealed but no mention was made of the
profit of £20,000, representing the discount on the mortgage. The company sought to recover
this sum from the syndicate. It was held that all the promoters who shared the secret profit were
severally liable for the full amount, with a right of contribution from their co-promoters.
A promoter should disclose to an independent board of directors, if this is not practicable, full
disclosure should be made to the shareholders.
A promoter is involved in securing subscriptions for shares42 to regulate share capital and
issuance, where promoters play a key role in convincing investors to subscribe for shares to
raise capital. Promoters are legally liable for misstatements in the prospectus where they are
held liable to pay compensation to every person who subscribes for any shares or debentures
on the faith of the prospectus for any loss or damages sustained by the reason of any untrue
statement included in it.
The fundraising provisions require companies that seek to raise funds by the offer of their
shares or other securities to provide investors with a disclosure document. A prospectus is the
main type of disclosure document that requires a prospectus to set out the nature and extent of
the interests that a promoter had in the formation or promotion of the company, property
acquired or proposed to be acquired by the company in connection with its formation or
promotion or the offer of securities and the offer of the securities. The prospectus must also set
out the amount paid or agreed to be paid for the promoter's services in connection with the
formation or promotion of the company or the offer of securities.
The remedies for breach of a promoter's fiduciary duties are available to the company and not
its shareholders. If a promoter breaches the fiduciary duties owed to the company, for example,

41
Gluckstein v Barnes [1900] AC 240
42
Companies Act 2015 sec.92-108
because of failure to disclose a personal interest in a contract with the company, the company
may rescind the contract. It is irrelevant that the promoter made no profit or had no dishonest
motive in respect of the contract. In some cases, equitable compensation may be combined
with an order for rescission43. Mandalay Pty Ltd (Mandalay) was incorporated to acquire a
parcel of land at Potts Point to build and manage houses, restaurants, and office spaces.
Mandalay alleged that various people who had been associated with Mandalay had breached
their fiduciary duties by participating in a scheme where Mandalay purchased land shares at
inflated prices. This produced significant gains for these people, many of these people were
not openly involved in forming Mandalay or the suspected transactions. The High Court held
that non-active participants in the formation process may be promoters. In the absence of
approval by an independent board after full disclosure, sales by a promoter to a company
formed by him are in the same position as any other sales by a trustee of his property to a person
towards whom he has a fiduciary relationship. These kinds of sales are voidable at the option
of the purchaser, but if the purchaser decides to firm the transaction, he must affirm it according
to its terms. Rescission was not available to Mandalay, but the promoters were liable to repay
Mandalay the profit gained by paying equitable damages. The order for rescission was
accompanied by orders that enabled the company to recover various costs such as taxes, rates,
and other losses which were ancillary to the primary remedy of rescission, and which ensured
that restitution occurred.
In the course of winding up of the company on any application made by official liquidators the
court may make a promoter legally liable for misfeasance, as their fiduciary role is based on
trust hence amounts to breach of trust. In appropriate circumstances, promoters may also be
liable to pay common law damages under the tort of deceit or the tort of negligent misstatement.
44
In a company prospectus, the defendant stated the company had the right to use steam-
powered trams as opposed to horse-powered trams. However, at the time the right to use steam-
powered trams was subject to approval of the Board of Trade, which was later refused. The
claimant purchased shares in the company in reliance of the statement made and brought a
claim based on the alleged fraudulent representation of the defendant. Held the statement was
not fraudulent but made in the honest belief that approval was forthcoming. Lord Herschell
defined fraudulent misrepresentation as a statement that is made either: i) knowing it to be
false, ii) without belief in its truth, or iii) recklessly, careless as to whether it be true or false.
In45 learned Lord, after alluding to the circumstance that the defendants had been acquitted of
fraud upon a criminal charge, and that there was a great deal to wear that they were laboring
under the impression that the concern had in it the elements of a profitable commercial
undertaking, proceeds to say: “They may be absolved from any charge of a willful design or
motive to mislead or defraud the public. But in a civil proceeding of this kind all that your
Lordships have to examine is the question, was there, or was there not, misrepresentation? If
there was, however innocent the motive may have been, your Lordships will be obliged to
arrive at the consequences which properly would result from what was done.” In the case then
under consideration, it was clear that if there had been a false statement of fact it had been
knowingly made. Lord Cairns certainly could not have meant that in an action of deceit, the

43
Tracy v Mandalay Pty Ltd (1953)
44
Derry v Peak (1889)
45
Peek v. Gurney (1873)
only question to be considered was whether or not there was misrepresentation. All that he
there pointed out was that in such a case motive was immaterial: that it mattered not that there
was no design to mislead or defraud the public if a false representation was knowingly made.
It was therefore but an affirmation of the law laid down in law.
In46 Lord Selborne thus laid down the law: “I conceive that in an action of deceit, the plaintiff
has to establish two things: first, actual fraud, which is to be judged of by the nature and
character of the representations made, considered concerning the object for which they were
made, the knowledge or means of knowledge of the person making them, and the intention
which the law justly imputes to every man to produce those consequences which are the natural
result of his acts; and secondly, he must establish that this fraud was an inducing cause to the
contract.” It will be noticed that the noble and learned Lord regards the proof of actual fraud as
essential, all the other matters to which he refers are elements to be considered in determining
whether such fraud has been established. Lord Blackburn indicated that although he nearly
agreed with the Master of the Rolls, that learned judge had not quite stated what he conceived
to be the law. He did not point out precisely how far he differed, but it is impossible to read his
judgment in this case, without seeing that in his opinion proof of actual fraud or of a willful
deception was requisite.

How To Become a Promoter

Promoters conduct the required process to establish a company as they shape the company
from its non-existent shape to a legal person who can transact in full capacity.
A promoter must be someone of goodwill to the formation of the company and be ready to
perform specific roles in the initial stages of the company to ensure it becomes fully operational
without any personalized interests or gain, hence must act with integrity in upholding their
fiduciary duties.
A promoter must understand the formation of a company concerning a given project to set it
going and take all the prerequisite steps to accomplish the purpose. Cockburn J,47 The Judge in
the Court of Appeal noted that the promoters are not exempt when there is negligence that
touches on their role hence, they can be sued as part of the ground-setting pioneers for not fine-
tuning the processes or cracks in the company formation, be it in contractual issues or
prospectus matters.
A promoter must be able to exert and propel for lifting or starting up a company in a manner
that floats the company to functionality and self-reliance to ensure it gets to its short-term and
long-term achievements in Identifying viable business opportunities and bringing them to
fruition. This means the promoter must possess some business acumen in understanding
financial markets, investments, and the depth of company formation.
A promoter regards the formation of a company in due diligence, 48for a person to be regarded
as a promoter of a company he must meet specific propositions which Joseph Gross refers to

46
Smith v. Chadwick (1884)
47
Twycross v Grant The Judge
48
Company Law, John Joseph Ogola; Focus Books Publishers 2011
as the ‘’animus and factum’’ test. This test is meant to mere intentions cannot constitute a
promoter but must perform a specific act to the formation of the company. The promoter must
be able to comply with the legal and regulatory framework that governs the company
registration and formation process, including a thorough understanding of the Company Act
2015 and relevant statutes.
The promoters play a key role in the establishment and success of the company hence legally
no matter the inputs, as long as they are within their threshold the promoter whether dealing
with the professional or employing the workers, the promoters form a crucial part of starting
up the company and it might never exist without them. The promoter can seek guidance or
mentorship from experienced promoters and business consultants to ensure that they have a
perfect understanding of the challenges that could be experienced in the initial stages and their
liabilities.
A promoter should possess negotiation and persuasion skills to convince investors and
stakeholders to back their vision as they build trust and act with integrity throughout the
process.
Legal and regulatory knowledge: Familiarity with company law and regulations surrounding
company formation and capital raising.