The legal position of a Promoter in relation to a company


The promoter has not been defined anywhere under the Companies Act, 1956. The Act, only states that a promoter of the company shall also be liable for misstatements in the prospectus.

Therefore, from the functional point of view, a promoter can be defined as a person who does the necessary preliminary work identical to the formation of the company. The first persons who control a company’s affairs are its promoters.

The following are the functions of a promoter are follows:

(a) Who conceives the idea of business.

(b) Originates the scheme for the formation of the company.

(c) Takes necessary steps to incorporate the company

(d) Provides initial capital or loan funds.

(e) Ensures that the memorandum and articles are prepared, executed, and registered.

(f) Decides the first director of the company.

(g) Makes agreements for the preparation, advertisements, and circulation of a prospectus.

(h) Finds the bankers, brokers, and legal advisors. Thus, in fact, the promoter is one who brings the company into existence.

Legal status/position of a promoter:

The statutory provisions are silent regarding the legal status of a promoter.

• A promoter cannot be an agent or trustee for the proposed company (or) company under incorporation.

• However, the law imposes certain duties, functions, responsibilities, and liabilities on a promoter which are “like that of an agent or trustee” of a proposed/under incorporation company.

• This position of the promoter “like that of an agent or trustee” is called the “fiduciary duties or fiduciary role or fiduciary position” of a promoter.

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