An organizer is entitled to all costs incurred to inform the company, such as advertising costs, appointment of support staff, compliance fees, etc. However, this right is not a contractual right and depends on the discretion of the directors of the company (in case there is no actual contract between the two). The demand for input costs must be supported by a duly ordered set of supporting documents and supporting documents. Subsequently, the provision of section 15(h) of the Specific Remedies Act 1963 departed from the common law principle by allowing the company to ratify or accept the pre-incorporation agreement with the essential condition of such pre-incorporation agreements which had to be justified by the conditions of incorporation. On the other hand, para. Section 19(e) of the Specific Remedial Measures Act 1963 reduces the liability of project promoters by allowing the other party to a preliminary contract to sue the company only if the conditions of incorporation are justified and by accepting the contract. A promoter is a person who carries out the preparatory work necessary for the incorporation of a corporation, that is, someone who takes all the necessary steps to incorporate a corporation. Therefore, a promoter is the first person responsible for the affairs of a company and it is he who must guide a company through the initial regulatory compliance and all other operations required for inclusion in the Companies Act 2013. A promoter may be an individual, a company or an association of persons, but not the professionals who assist him in these steps (such as lawyers, company secretaries, lawyers and accountants, etc.).
In Prabir Kumar Mishra v. Ramani Ramaswamy [10], it was decided that it is not mandatory for a promoter to be liable for not being a signatory to the articles of association or a director of a corporation. It is based on the civil liability of the organizer towards the company and the third party remains in relation to his conduct and his contract that he concluded during the pre-incorporation phase as trustee or agent. In Twycross v. Grant [6], the Court dispelled the doubts and held that the defendants were promoters of the company by virtue of the functions they held. Thus, some important functions of the promoter in this historical case have been explained, they are: As under section 63 of the Act, a promoter who makes misleading statements in a prospectus may incur up to 2 years` imprisonment (in case of serious fraud and subsequent violations) or may be liable to a fine of Rs 5000 for making false statements in the prospectus. A business is a legal entity that voluntarily partners with a group of people to employ and operate a business. Lord Justice Lindley defines a company as a company formed by an association of several people to bring money or monetary value in ordinary shares and employ them in a trade or business and share the resulting profits/losses [1]. Promoters act as key people in the promotion phase, which is the first step in starting a business. The promoter carries out all the preparatory work necessary for the creation and promotion of the enterprise.
In this way, project promoters formulate a term for the creation of a particular company and complete the various formalities necessary for the creation of a company. [1] What Is Company, available at www.legalserviceindia.com/legal/article-1293-what-is-company.html (last accessed November 24, 2020). Section 2 (69) of the Companies Act, 2013 (hereinafter referred to in this section as “the Act”) defines a promoter as a person – Under section 2 (69) of the Companies Act 2013, a person acting solely in a professional capacity is not a promoter. Therefore, a lawyer who prepares the main documents of the proposed corporation on behalf of the proponent is not considered a proponent. At the same time, an evaluator or accountant who assists in promotion within the scope of his or her professional capacity is not a sponsor. However, a person may only become a promoter if he or she contributes to the start-up of the business by carrying on activities outside the scope of his or her professional duty. In Re Great Wheal Polgooth Co Ltd [8], it was found that a lawyer who is a professional adviser for the mere provision of legal advice is not considered to be a promoter of that company. Certain specific facts and reports must be included in a company`s prospectus. Subsection 62(1) of the Act provides that a promoter is required to indemnify any person who signs the prospectus for any loss or damage attached to the prospectus as a result of misrepresentation contained in the prospectus. However, in case of modification of the contract, the responsibility of the company will be engaged and the promoter will not be liable. The new contract(s) having been replaced by the pre-foundation contract, the responsibility of the promoter ends with the novation of the contract.
In Re Howard v Patent Ivory Manufacturing Co [12], it was decided that the developer was exempt from personal liability since the terms of the original agreement had been replaced by a new one by the parties to the pre-incorporation agreement. The promoter was not defined anywhere in the Companies Act 1956. The law simply states that a promoter of the company is also liable for false information contained in the prospectus. If the promoters make a secret profit when the company is incorporated and the entire amount is then paid by only one of them to the directors, he has the right to claim the amount on a pro rata basis from the co-organizers. In the event that several organizers cooperate, one may claim from the other compensation or damages paid in the performance of its obligation. The organizers are jointly and severally liable for false or misleading statements and breach of other obligations. In a company, promoters and directors play an important role, albeit at different stages of its life. However, these two categories of people have a closely related relationship. Let`s get to the heart of the matter. The court added that the promoter`s function ends once he hands over the full management of the business to the board of directors.
The legal provisions are silent on the legal status of an organizer. The position of promoter vis-à-vis the company was in Erlanger v. New Sombrero Phosphate Co [7], where Lord Cairns held that the position of “promoters of a company” is undoubtedly in a fiduciary position. They are endowed with the power to create and shape the company. They have the power to decide how, when and under what control the corporation will be incorporated and act as a commercial corporation. The promotion profession gives project leaders a very privileged position. Thus, the court had determined them under the responsibility of a trustee. Therefore, a promoter has no legal status. They are not trustees or representatives of any corporation.
In addition, the company had no rights as an independent legal entity prior to its incorporation. A promoter is a person who has the idea to run a particular business. He is the one who creates or helps a business for a company and develops the business plan through promotions. It remains associated with the activity and activities carried out by the company. He continues to perform his duties in all areas of activity until the full management, direction and affairs of the company are taken over by the Board of Directors. The following functions are assigned to a promoter to be performed for and on behalf of the Company: – One or more persons designated as promoters in the offer document. [5] A promoter is in a fiduciary relationship (i.e., one that requires trust) with the business they are promoting. He is neither a representative nor an employee of the company and must therefore fulfill certain obligations to the company that are not similar to those of an agency or employee-employer relationship. This was also observed by Lord Cairns in Erlangen v.
New Semberero Phosphate Co. where he also defined the scope of the promoter role. “This position of the promoter – like that of an agent or trustee – is referred to as a promoter`s `fiduciary duty or fiduciary role or fiduciary position`. A director of a company is a person elected or convened by the shareholders to manage the affairs of the company (in accordance with the MOA and AOA). A director therefore sits at the head of a branch of a company`s management or manages everything together by holding management positions such as CEO, CFO and CXO, etc. The following functions of a promoter are as follows: Promotion is the crucial phase among the stages of setting up a business, since all the main functions of the foundation are carried out in order to ensure the leveled operation of the business without inconveniences. Therefore, a promoter is an important person who puts a lot of effort into starting and registering a business. He is the one who develops the idea of starting a business and getting involved in it. It fulfills an essential role, which is essential in the constitution of a company or a company.
A promoter is the starter of the business and the business. It develops a better situation for the company by getting all the prerequisites that a company should have.