✅
PROMOTION AND
INCORPORATION OF
COMPANIES
PROMOTION
Promoter?
Section?
Section 2(69) of the Companies Act
Meaning?
“Promoter” means a person -
i) who has been
named in a prospectus or is identified by the company in the annual return
referred to in section 92; or
ii) who has
control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
iii) in accordance with whose advice, directions or instructions the Board of
PROMOTION AND INCORPORATION OF COMPANIES 1
, Directors of the
company is accustomed to act.
Provided that sub-clause (iii) shall not apply to a person who is acting merely in
a professional capacity, i.e., giving only professional advice to the Board of
directors.
how is it given meaning under the SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009?
i) the person or persons who are in control of the issuer;
ii) the person or persons who are instrumental in the formulation of a plan or programme
of offering securities to the public;
iii) the person or persons named in the offer document as promoters.
is a Director/Officer/Employee of the issuer a promoter?
Yes. A director or an officer or an employee who has control over the affairs of the
company, either directly or indirectly, is considered as a promoter.
how is control defined?
Section 2 (27)
the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons by
virtue of their shareholding or management rights or shareholders
agreements or voting agreements or in any other manner.
but a director or an officer or an employee is acting merely in their professional
capacity, shall not be deemed to be a promoter
who can be a promoter?
a promoter can be a natural person or a company
in common parlance to denote any individual, corporate, association or partnership
which has taken all the necessary steps to create and mould a company and set it going.
The promoter originates the scheme for the formation of a company; gets together
the subscribers to the memorandum, gets the Memorandum and Articles prepared,
executed and registered, finds the bankers, brokers and legal advisers, finds the first
directors, settles the terms of preliminary contracts with vendors and agreement with
PROMOTION AND INCORPORATION OF COMPANIES 2
, underwriters, and makes arrangement for preparation, advertisement and circulation
of the prospectus and placement of the capital.
but it is not the case that who takes a lesser active role in the formation of the
company cannot be a promoter
but somebody who is only working in his professional capacity such as a lawyer who
drafts the agreements, articles, or an accountant who prepares figures or valuation on
behalf of a promoter and is paid for the same, shall not be considered to be a
promoter.
What happens to Promoters’ Contract?
What did Kelner v. Baxter hold?
the company could not ratify contract made by a promoter before its incorporation.
it arrived at this decision because to form a contract, two consenting individuals are
required, and before incorporation, the company is not in existence.
the promoters found it really difficult to carry out the work of incorporation until the
passing of the Specific Relief Act, 1963.
as contracts were not enforceable, there was a hesitation to supply goods and
services.
what change took place after that?
The Specific Relief Act, 1963 was enforced.
which section provided the remedy thereof?
Section 15 (h) therein.
what did it state?
where the promoters of the company entered into contracts, after incorporation,
the company may enforce the same, if mentioned in the objects of the MOA.
any other relief given by the SRA on this regard?
Yes, Section 19.
what does it state?
that even the other party can enforce the contract that was made by the
company before its incorporation, if it has been adopted by the company in
PROMOTION AND INCORPORATION OF COMPANIES 3
PROMOTION AND
INCORPORATION OF
COMPANIES
PROMOTION
Promoter?
Section?
Section 2(69) of the Companies Act
Meaning?
“Promoter” means a person -
i) who has been
named in a prospectus or is identified by the company in the annual return
referred to in section 92; or
ii) who has
control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
iii) in accordance with whose advice, directions or instructions the Board of
PROMOTION AND INCORPORATION OF COMPANIES 1
, Directors of the
company is accustomed to act.
Provided that sub-clause (iii) shall not apply to a person who is acting merely in
a professional capacity, i.e., giving only professional advice to the Board of
directors.
how is it given meaning under the SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009?
i) the person or persons who are in control of the issuer;
ii) the person or persons who are instrumental in the formulation of a plan or programme
of offering securities to the public;
iii) the person or persons named in the offer document as promoters.
is a Director/Officer/Employee of the issuer a promoter?
Yes. A director or an officer or an employee who has control over the affairs of the
company, either directly or indirectly, is considered as a promoter.
how is control defined?
Section 2 (27)
the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons by
virtue of their shareholding or management rights or shareholders
agreements or voting agreements or in any other manner.
but a director or an officer or an employee is acting merely in their professional
capacity, shall not be deemed to be a promoter
who can be a promoter?
a promoter can be a natural person or a company
in common parlance to denote any individual, corporate, association or partnership
which has taken all the necessary steps to create and mould a company and set it going.
The promoter originates the scheme for the formation of a company; gets together
the subscribers to the memorandum, gets the Memorandum and Articles prepared,
executed and registered, finds the bankers, brokers and legal advisers, finds the first
directors, settles the terms of preliminary contracts with vendors and agreement with
PROMOTION AND INCORPORATION OF COMPANIES 2
, underwriters, and makes arrangement for preparation, advertisement and circulation
of the prospectus and placement of the capital.
but it is not the case that who takes a lesser active role in the formation of the
company cannot be a promoter
but somebody who is only working in his professional capacity such as a lawyer who
drafts the agreements, articles, or an accountant who prepares figures or valuation on
behalf of a promoter and is paid for the same, shall not be considered to be a
promoter.
What happens to Promoters’ Contract?
What did Kelner v. Baxter hold?
the company could not ratify contract made by a promoter before its incorporation.
it arrived at this decision because to form a contract, two consenting individuals are
required, and before incorporation, the company is not in existence.
the promoters found it really difficult to carry out the work of incorporation until the
passing of the Specific Relief Act, 1963.
as contracts were not enforceable, there was a hesitation to supply goods and
services.
what change took place after that?
The Specific Relief Act, 1963 was enforced.
which section provided the remedy thereof?
Section 15 (h) therein.
what did it state?
where the promoters of the company entered into contracts, after incorporation,
the company may enforce the same, if mentioned in the objects of the MOA.
any other relief given by the SRA on this regard?
Yes, Section 19.
what does it state?
that even the other party can enforce the contract that was made by the
company before its incorporation, if it has been adopted by the company in
PROMOTION AND INCORPORATION OF COMPANIES 3
