View Full Version : Q. Explain the term promoter of a company.

08-27-2012, 04:41 AM
Q. Explain the term promoter of a company. what are their duties and liabilities how are they remunerated? (2000) (2002) (2003)
1. Introduction:
The companies ordinance 1984 does not define the word 'promoter' any how attempts have been made in various judicial decision. the persons who take initiative in the formation of the company are called promoters of the company. the prepare certain legal document and take all necessary steps necessary for the registration of the company. they convince responsible persons to act as first director of the company.
Rights of the promoters:
(i) Right to receive the preliminary expenses.
(ii) Right to receive remuneration for their services.
(iii) Right to receive the proportionate money from promoters.
2. Case law definition:
Twyeross vs. Grant
1877 2 CPS 469
A promoter is a person who undertakes to form a company with reference to given object and to set it going and float the company.
3. Stages of formation of company:
Following are the four main stages of formation of company.
(i) Promotion stage.
(ii) Incorporation stage.
(iii) Raising of share capital.
(iv) Business commencement certificate.
4. Who may called promoters of the company:
Following persons may be called the promoters of the company.
(i) Persons who prepare the prospectus of the company.
(ii)Persons who give instructions for the preparation of the memorandum of association.
(iii) Persons who give instructions for the preparation of the articles of association.
(iv) Persons who undertake necessary steps to accomplish the purpose.
(v) Persons who negotiate underwriting contract and contract for the purchase of property for the company.
(vi) Persons who make arrangement of the directors of the company.
5. Types of promoters:
I. Professional promoters:
Professional promoters are those promoters who provide their services for the formation of a company to other people. they hand over the promoted company to the shareholders.
II. Occasional promoters:
Occasional promoters are those promoters who provide their services to other people for the formation of the company as a part time job. they receive the reward in the shape of commission after existence of the company.
III. Promoters:
Promoters are those who do job of the promotion for their own sake. they make all investigation and arrangement for the formation of the company. after the formation, the do not retire.
6. Duties/functions of promoters:
Following are the main duties of the promoters.
I. Investigation:
Promotes make investigation about the demand for the product, availability of powers labour, etc.
II. Finding out persons:
Promoters find out the persons who are willing to sign the memorandum of association and to act as first director.
III. Selection functions:
Promoters select.
(i) Bank
(ii) Auditors
(iii) Legal advisors
(iv) Underwriters for the company.
IV. Preparation of documents:
Promoter prepare essential documents for the formation of the company.
V. Submission of documents:
Promoters submit necessary document for the incorporation of the company.
VI. Payment of expenses:
Promoters pay preliminary expenses at the time of registration of the company.
VII. Arrangement of business:
Promoters make arrangement for the office, factory, machinery, staff, allotment of the shares and debenture. they take all steps for obtaining the certificate of commencement of the businesses.
VIII. Decision of amount of capital:
Promtors decide the amount of necessary capital and the necessary means to raise it.
7. Liabilities of promoter:
I. Promoter's liability to disclose:
The promoter of the company are under an obligation to disclose fully all material facts relating to the formation of the company for, the relationship between the promoters and a company is of fiduciary character.
(i) Conditions:
(a) A disclosure must be actual and express.
(b) It must be made to a body of persons acting on the behalf of the persons.
(c) Body of persons must be in position who can exercise independent judgment.
II. Promoter's liability for secret profit:
A promoter is answerable for any secret profit that he may have made during the formation of the company.
8. Remuneration of promoters:
A promoter is entitled for reasonable remuneration.
9. Modes of payment:
Following are the modes of payment.
(i) The vendors may agree to pay him a commission.
(ii) The promoter may purchase a property and sell it to the company at a profit.
(iii) The promoter may be given deferred or founder's shares fully paid up.
10. Conclusion:
To conclude I can say that, promoter means a person who take initial steps to form a company. they prepare the various documents and take all necessary steps for the registration of the company, whether a person is a promoter or not depends upon the circumstances of each case. promoters are under a duty to disclose fully all the material facts relating to the formation of the company. they should not make secret profit.