Define Promoter. And discuss its rights, duties, liabilities, and functions?

Meaning Of Promoter

The person or of a group of people who initiates the idea of carrying on a business in order to earn some profit is called Promoter. They organized a scheme further the formation of a company and published all the legal requirements in order to insure smooth running of the company in a profitable manner.

Function Of Promoter

  • To discover an idea of forming a company and accessing the possibilities.
  • Selecting the 1st director of the company to get their concept.
  • To conduct necessary negotiation for further purchase of the business.
  • Arranging the investment of capital in the company’s office.
  • Arranging the minimum subscription by using share and debenture.
  • Decide about the name of the company, location of a register office, amount of its share capital, auditor and legal advisor.
  • Collect requisition number of people who can sign Memorandum Of Association & Article Of Association.
  • Getting certificate of commencement in case of a public limited company.

Status Of Promoter

For the sake of classification regarding the position of a promoter of a company. It has a good emphasis on its status. It includes:

Not to make any secret profit

A promoter can’t be allowed not to make any secret profit if it is found that he has obtained a secret profit for him. He will be found to be refunded the same to the company.

Not to earn profit on personal asset 

The promoter isn’t allowed to earn profit for the sake of his own properly to the company. If he does so without disclosing the company can be enforced by the law promoter to return secret profit.

Rights Of Promoter

To receive preliminary expenses 

The promoter is entitled to receive all the expenses included in setting up and registering the company for the board of directors. The article may provide for payment of such expenses to the promoter.

Right to identify

When more than one person acts as the promoter of the company one promoter can claim against another further compensation and damages paid by him there also jointly liable for any untrue statement given in the prospectus & secret profit made#.

Right to remuneration

A promoter has no right against the company for his remuneration unless there is any contract for such the payment of remuneration to a promoter, it is the consideration for his service. It is paid in the form of share, debenture, commission etc.

Duties Of Promoter

  • To disclose secret profit
  • It is the most important duty of a promoter to disclose any profit made by him to the company. If they make any secret profit then it is his duty to give up the same to the company.
  • To disclose all private arrangement
  • Another important duty of a promoter is to disclose to the company. Any private arrangement made to earn profit.
  • To disclose all material facts
  • A promoter is bound by law to disclose all the material facts. It means he can’t see any property to the company without such disclosure.
  • To show goodwill
  • It is another important duty of a promoter to show his goodwill to the future shareholder of the company. It enables us to attract more investors to invest in our company.
  • Duty of promoter against the future allottees
  • The promoter not only has a relationship with the company or signature of a memorandum of association but also stands in a relation of future allottees of a company.
  • To disclose the profit which he has earn as trustee
  • The last but not the least duty of a promoter is to disclose the profit which he has earned as a trustee. It ensures the confidence of the company promoters. 

Liabilities of promoter

As like other contract the promoter not only enjoy certain right of duties they also remain liable for certain liabilities, those are:

Liability due to fiduciary

A promoter has a fiduciary relationship with the company based on trust and confidence. It is considered as the main liabilities of the promoter on which basis the company can sell him for breach of trust when he makes some secret profit.

Liability for mis-statement

The promoter is liable for any untruth statement given in the prospectus to a person who has subscribed for any share or debenture. It means the sufferer party may appeal to the promoter for compensation for any loss or damage.

Liability for insolvency

If a promoter becomes insolvent of his property shall be liable for his debt of the company.

Liability of the death of promoter

On the death of a promoter the company may recover the damages or compensation from the property of the deceased promoter. It means they can recover the amount from selling the private property of a promoter in order to meet its requirement.

Liability for frauds

The court may prohibit a promoter from taking a path in the management of a company for five years. If he is provided for fraud or breach of duties then he should be liable for any loss faced by the company due to his breach of duty for fraud.

Liability of winding a company

It is the last but not the least liabilities of the promoter. It means when the company is winding up by the order of court due to the fraud in promotion to the formation of the company. The promoter should be liable to the public like other offices.

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