Promoter

In order to incorporate a company, there must be a person who initiates the idea of entity. So the, the first persons who control a company’s affairs are its promoters. He is a person who does the necessary preliminary work incidental to the formation of a company. He is a person who identifies a business opportunity or idea, analyses its prospects, and takes steps to implement it.

According to [Sec. 2(69)] Companies Act 2013, Promoter means a person 

a) Who has been named as such in a prospectus or is identified by the company in the annual return referred to in Section 92; or
b) Who has control over the affairs of the company, directly or indirectly, whether as a shareholder, director or otherwise or
c) In accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

However, if he is acting in a professional capacity, he shall not be treated as Promoter.

According to Justice C Cockburn, Promoter is "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".

Functions of Promoter

Deciding the name for Company

It is the promoter who seek the permission of the Registrar of Companies, for selecting the name to the company. He should a select a unique name for the company which should not be identical or too closely resemble the name of another existing company.

Details of Memorandum of Association and Articles of Association

Before incorporating a new company, must submit its Memorandum and Articles of Association to the Registrar of Companies. On the advise of the experts, it is the promoter who get MOA and AOA prepared and printed.

Nomination of Directors

Generally, the first directors are appointed by the Promoters. Promoter has to seek their consent and get get signed documents related to the company.

Registration of office

Within the 15 days of registration of the company, it must have its own registered office, and submit these details to the Registrar for correspondence or communication. This work is normally done by Promoter.

Printing of MOA and AOA

There are lot of clerical works related to preparation of Memorandum and Article. These two basic documents along with other documents must be prepared, get signed, printed and submitted within the due the date to the Registrar of Companies. 

Registration of the company

Once all the documents necessary for formation of a company are get signed and prepared in proper format, the actual process of registration begins. These work need to be carried with utmost care, without any lapse. It is the promoter who face the registration process with documents.

Issuing of Prospectus

The detailed notice or information about the company need to be given for the public to subscribe in the company. This may be prospectus or documents in lieu of prospectus, need to be prepared by the promoter with the consent of legal experts.

Bringing of company into existence

It is the responsibility of the promoter to do all the work which are necessary to bring the company into existence. Since Promoter is the person who coined the idea of formation of company, only he can chalk out the things which are required for formation.

Fiduciary Position of a Promoter

 1.Not to make any secret profit

Promoter should not make any profit directly or indirectly at the cost of the company which is being formed. Similarly, he is not allowed to drive any profit from the sale of his own property to the company unless all material facts are disclosed. If he made any profit without notice to the company, then the company may compel him to account for and surrender such profit.

 2. To give benefit of negotiations to the company

The promoter must give benefit to the company of any contracts (or) negotiations enter into by him in respect of the company. Thus where he purchases some property for the company and he cannot rightfully sell that property to the company, he may sell at a higher price than he gave for it. If he does do, the company may on discovering the fact, the company may have the following remedies against such promoter:

a) Rescind the contract and recover the money if any already paid on the transaction (or)
b) Retain the property, pay the promoter only the cost value and deprive him the profit, (or)

c) Where the above remedies are inappropriate, the company may sue for misfeasance (i.e.., breach of duty to disclose)

3. To make full disclosure of interest and profits

If the promoter fails to disclose the relevant facts, the company may sue him for damages for breach of his fiduciary duty and recover them from him any secrete profit. It is important to note that profit is permissible, if full disclosure of the facts is given to the independent Board of director (or) shareholders.

 4. Not to make unfair use of the position

The promoter must not make an unfair (or) reasonable use of his position and must take care to avoid anything which has the appearance of undue influence (or) fraud. Further, a promoter cannot relieve himself of is liability by making provisions to that effect in the Article of the company.

Duty of promoter as regards prospectus

It is the duty of the promoter to see that, prospectus or statement in lieu of prospectus if issued, by the company contains the necessary particulars and it does not contain any untrue or misleading statements or does not omit any material fact.

Remuneration of a promoter

Unless there is a contract to the remuneration for a promoter, he has no right to get compensation from the company for his services in promoting the company. Normally he takes remuneration for his services in one of the following ways.

• He may sell his own property at a profit to the company for cash or fully paid shares provided he makes a disclosure to this effect.
• He may be given an option to buy a certain number of shares in the company at par.
• He may take a commission on the shares sold.
• He may be paid a lump-sum by the company.

==================================
Do Not Write below this note
==================================

Redrafted for Educational Purpose.

Deekshith Kumar,
Assistant Professor of Commerce

Book Reference:

1. Elements of Mercantile Law by N. D. Kapoor
2. Principles of Mercantile Law by Avtar Singh
3. A Textbook of Business Law by Dr. Umesh Maiya
4. Business Law by B.S. Raman