Incorporation of a company
Definition by Palmer – Promoter is a person who originates a scheme for the formation of the
company, gets the Memorandum & Articles prepared, executed & registered, and finds the first
Directors, settles the terms of preliminary contracts & Prospectus, and makes arrangements for
advertising and circulating the Prospectus and placing the capital.
Definition of Promoter [Section 2(69)] – Promoter means a person –
a. Who has been named as such in a prospectus or is identified by the company in the
annual return; or
b. Who has the control over the affairs of the company, directly or indirectly weather 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.
Provided that nothing in clause (c) shall apply to a person who is acting merely in a
professional capacity.
Note: The term ‘Promoter’ is not a term of law, but it is a term of business. In other words, it is
not important or possible to define the ‘promoter’ or his functions carried on by him. It is a
term of business, i.e., the term promoter needs to be understood in the practical business
sense.
Position of Promoter - A Promoter is neither an agent nor a trustee of the company, since the
company has not come into existence. However, his position is similar to that of an agent and
trustee. He is in fiduciary capacity.
Duties of Promoters
(a) Not to make secret profit – Any secret profit made must be disclosed to Board of
Directors. In other words, a Promoter can make a profit in respect of any transaction
with the company, only if he makes full & fair disclosure of the same.
(b) Full and fair disclosure of interest – Promoter must make full and fair disclosure of his
interest in every transaction or contract with the company in which he is directly or
indirectly interested.
Remedies available to the company against Promoters
Where a Promoter makes a secret profit and afterwards this fact becomes known to the
company, the company will have the following remedies:
a) Rescission – The Company may rescind the contract, even though the company has
adopted the contract and communicated the fact of adoption to other party to the
contract. However, rescission must be made within reasonable time.
Incorporation of Company
Page 1
Definition by Palmer – Promoter is a person who originates a scheme for the formation of the
company, gets the Memorandum & Articles prepared, executed & registered, and finds the first
Directors, settles the terms of preliminary contracts & Prospectus, and makes arrangements for
advertising and circulating the Prospectus and placing the capital.
Definition of Promoter [Section 2(69)] – Promoter means a person –
a. Who has been named as such in a prospectus or is identified by the company in the
annual return; or
b. Who has the control over the affairs of the company, directly or indirectly weather 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.
Provided that nothing in clause (c) shall apply to a person who is acting merely in a
professional capacity.
Note: The term ‘Promoter’ is not a term of law, but it is a term of business. In other words, it is
not important or possible to define the ‘promoter’ or his functions carried on by him. It is a
term of business, i.e., the term promoter needs to be understood in the practical business
sense.
Position of Promoter - A Promoter is neither an agent nor a trustee of the company, since the
company has not come into existence. However, his position is similar to that of an agent and
trustee. He is in fiduciary capacity.
Duties of Promoters
(a) Not to make secret profit – Any secret profit made must be disclosed to Board of
Directors. In other words, a Promoter can make a profit in respect of any transaction
with the company, only if he makes full & fair disclosure of the same.
(b) Full and fair disclosure of interest – Promoter must make full and fair disclosure of his
interest in every transaction or contract with the company in which he is directly or
indirectly interested.
Remedies available to the company against Promoters
Where a Promoter makes a secret profit and afterwards this fact becomes known to the
company, the company will have the following remedies:
a) Rescission – The Company may rescind the contract, even though the company has
adopted the contract and communicated the fact of adoption to other party to the
contract. However, rescission must be made within reasonable time.
Incorporation of Company
Page 1
