Table of contents | |
Introduction | |
Who Are Promoters? | |
Legal Definition of a Promoter | |
Promoter in Legal Cases | |
Role of a Promoter | |
Termination of Promoter Status |
When someone has an idea for a new business, they often try to get others interested and convince them to invest money to start a company. This person is known as the 'promoter' of the company. However, if someone is acting in a professional role, they are not considered a promoter. A company only comes into existence when it is officially registered. The process of setting up a company involves preparing various documents and completing certain formalities, all of which are handled by the promoters.
Promoters play a crucial role in the formation of a company. Their main job is to initiate the process of setting up the company. This process can be divided into four stages:
Promotion refers to the initial steps taken to prepare for the registration and floatation of the company. A promoter can be an individual, a group of people, an association, a partnership, or even another company.
According to Section 2(69) of the Companies Act, 2013, a promoter is defined as a person who:
The term "promoter" is also used in various sections of the Companies Act, such as sections 35, 39, 300, and 317.
In the case of Bosher v. Richmond Land Co., a promoter is described as someone who is responsible for bringing a corporation into existence and organizing it. This includes gathering interested parties, helping with subscriptions, and initiating the formation process. Essentially, a promoter is someone who plans to establish a company for a specific project and takes the necessary steps to make it happen. The term "promoter" is more of a business concept than a legal one, as noted by L.J. Brown in the case of Whaley Bridge Printing Co..
A person does not have to be involved in the initial formation of the company to be considered a promoter. Even someone who helps arrange the floating of capital later on can be regarded as a promoter. However, individuals assisting the promoters in a professional capacity do not become promoters themselves. The relationship between a promoter and the company they are establishing is considered a fiduciary relationship from the beginning of the formation process until the directors take over the remaining tasks needed to complete the company setup.
A promoter's status usually ends when the Board of Directors is formed and takes over the management of the company. Initially, the promoters are the ones who control and influence the company’s affairs. They come up with the idea of forming the company and take the necessary steps to incorporate it, including arranging for share and loan capital. Once these tasks are completed, the control of the company is handed over to the directors. At this point, the promoter's fiduciary duties and legal obligations cease, and they are no longer bound by any duties towards the company beyond what a regular third party would be.
51 docs|9 tests
|
1. What is the legal definition of a promoter in corporate law? |
2. What are the main roles and responsibilities of promoters? |
3. How is the status of a promoter terminated? |
4. What legal obligations do promoters have during the formation of a company? |
5. Can promoters be held liable for any misrepresentation made during the promotion of a company? |
|
Explore Courses for CLAT PG exam
|