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Promoters: Farzana Yeasmin Mehanaz

The document discusses promoters, who undertake to form a company by conceiving of the business opportunity, collecting the necessary people to sign the memorandum and articles of association, deciding various aspects of establishing the company like name, capital, and location, and arranging for the registration of the company. Promoters have fiduciary duties to disclose any secret profits and not benefit improperly from their position. Their liability extends from any misrepresentations or omissions in prospectuses through the completion of contracts establishing the company.

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Manjare Hassin Raad
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2K views14 pages

Promoters: Farzana Yeasmin Mehanaz

The document discusses promoters, who undertake to form a company by conceiving of the business opportunity, collecting the necessary people to sign the memorandum and articles of association, deciding various aspects of establishing the company like name, capital, and location, and arranging for the registration of the company. Promoters have fiduciary duties to disclose any secret profits and not benefit improperly from their position. Their liability extends from any misrepresentations or omissions in prospectuses through the completion of contracts establishing the company.

Uploaded by

Manjare Hassin Raad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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PROMOTERS

Farzana Yeasmin Mehanaz


Faculty of Law
Eastern University
Meaning of Promoter
 Promotion is the first stage in the formation of a company.
– It involves conceiving a business opportunity and taking an initiative
to form a company.
– exploiting the available business opportunity.
 A promoter is said to be the 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.
 Companies Act 1994 doesn't provide the meaning of ‘promoter’.
Functions of a Promoter
1. To conceive an idea of forming a company and explore its
possibilities;
2. To conduct the necessary negotiation for the purchase of
business;
3. To collect the requisite number of persons (i.e. seven in case of
a public company and two in case of a private company) who
can sign the ‘Memorandum of Association’ and ‘Articles of
Association’ of the company and also agree to act as the first
directors of the company;
Cont...
4. To decide about the following:
(i) The name of the Company,
(ii) The location of its registered office,
(iii) The amount and form of its share capital,
(iv) The brokers or underwriters for capital issue, if necessary,
(v) The bankers,
(vi) The auditors,
(vii) The legal advisers.
Cont...
5. To get the Memorandum of Association (MOA) and Articles of
Association (AOA) drafted and printed;

6. To make preliminary contracts with vendors, underwriters, etc;


7. To make arrangement for the preparation of prospectus, its filing,
advertisement and issue of capital;
8. To arrange the registration of company and obtain the certificate of
incorporation;
9. To contribute preliminary expenses;
10. To arrange the minimum subscription.
Legal Position of a Promoter
 From the fiduciary position of promoters, the following important matters needs
to be observed:

(1) A promoter cannot be allowed to make any secret profits.

(2) If it is found that in any particular transaction of the company, he has obtained a
secret profit for himself, he will be bound to refund the same to the company.

(3) The promoter is not allowed to derive a profit from the sale of his own property to
the company unless all material facts are disclosed.

(4) If he contracts to sell his own property to the company without making a full
disclosure, the company may either repudiate/rescind the sale or affirm the contract
and recover the profit made out of it by the promoter.
Cont...
 The disclosure may be made:
(i) To an independent Board of Directors; or
(ii) In the articles of association of the company; or
(iii) In the prospectus; or
(iv) To the existing and intended shareholders directly.
Cont...
 If the promoter fails to discharge the obligation demanded of
his fiduciary position the company may rescind the contract or
may in the alternative choose to take advantage of the contract
and sue the promoter for damages for breach of his duty to the
company.
 Secret profits on the sale of property can be recovered from a
promoter only when the property was bought and sold to the
company while he was acting as a promoter.
Lord Lindley emphasised the following:
 Trustworthy fiduciary relations;
 Binding of promoters by directors after registration of company;
 Directors not being personally liable;
 Termination of contract on the basis of misrepresentation;
 No termination of voidable contract if the situation of parties is
changed;
Liability of the Promoters of Company
1. To disclose the liability and pay the secret profits if
promoters have earned.
2. Liability is up to the completion of contracts.
3. Liability for statutory mistakes or fraud in the
prospectus.
4. His property becomes liable for payment even after
his death.
Cont…
Liability due to fiduciary relationship:
I. Liability for misstatement in prospectus;
II. Liability for fraud, misfeasance (wrongful exercise of
lawful authority) or breach of duty;
III. Liability on insolvency;
IV. Liability on the death of a promoter;
V. Liability on winding up of a company.
Rights of Promoters
1. Right to receive preliminary expenses;
2. Right to receive remuneration for their
services;
3. Rights to receive the proportionate money
from promoters.
Duties of Promoters
1. To disclose private arrangements;
2. To disclose secret profits;
3. To disclose all material facts;
4. To disclose the profit which he has earned as trustee;
5. To show goodwill towards future shareholders.
Remuneration of Promoters
1. Cash;
2. Option to purchase shares;
3. Partly in cash and partly in shares and debentures;
4. Commission;
5. Profit on assets.

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