A promoter in company law is the individual or group of individuals who undertake the necessary steps to bring a company into existence. They are instrumental in the formation and initial operation of the company.
Roles and Responsibilities of a Promoter
Promoters are not merely initiators; they play a critical role in the formative stages of a company. Their responsibilities include:
- Conceptualization: Conceiving the idea of the business venture.
- Feasibility Studies: Assessing the viability and potential profitability of the business.
- Assembling Resources: Gathering the necessary resources, including capital, land, and machinery.
- Negotiating Contracts: Entering into preliminary contracts on behalf of the future company.
- Preparing Documents: Drafting the Memorandum of Association (MOA) and Articles of Association (AOA), which are the company's foundational documents.
- Registration: Completing the registration process with the relevant regulatory authorities.
- Initial Capital Raising: Securing initial funding for the company.
Legal Position of a Promoter
The legal status of a promoter is unique. They are neither agents nor trustees of the company before its incorporation, as the company does not yet legally exist. However, they have a fiduciary duty towards the company and its future shareholders. This means they must act in good faith and not make secret profits at the company's expense. Key aspects of this fiduciary duty include:
- Disclosure: Promoters must disclose any personal interest they have in transactions with the company.
- Avoidance of Secret Profits: Promoters cannot make undisclosed profits from the company's formation.
- Fair Valuation: When selling their own property to the company, promoters must ensure a fair and reasonable price.
Examples of Promoter Activities
Consider a scenario where John and Mary decide to start a tech company.
- John conceives the idea for a new social media platform.
- Mary conducts market research to assess its potential.
- Together, they secure office space and negotiate with software developers.
- They draft the MOA and AOA and register the company with the relevant authorities.
- They raise seed capital from investors.
In this case, both John and Mary are acting as promoters.
