MEANING OF PROMOTER

A promoter is a one (i.e. individual firm, company etc.) who performs the preliminary duties necessary to bring the company into being and float it, i.e. who brings the company into existence. He conceives the idea, develops it and induces others to join the enterprise. A person who merely acts in a professional capacity on behalf of the promoter, such as solicitor or an accountant and who is paid by him is not a promoter.

Legal position of promoter

The company not being in existence, a promoter is neither an agent of, nor a trustee for, the company. But he occupies a FIDUCIARY position (i.e., position of trust & confidence) in relation to the company he promotes. The fiduciary relation requires full disclosure if the relevant facts, including any profits made.

Duties of promoter

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The two important duties of promoter of a company:The promoters, being in a fiduciary position, can not make, either directly or indirectly, any profit at the expense of the company he promotes, without the knowledge and consent of the company and that if he does make a profit in disregard of this rule, the company can compel him to account for it.

Duties of promoter

2.

A promoter is not allowed to derive a profit from the sale of his own property to the company, unless all material facts are disclosed.
The disclosure must be made to an independent Board of Directors and where there is no independent Board of Directors, disclosure must be made to the intended shareholders as a whole.

Remedies available to the company against promoter

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Rescind the contract and if he has made a profit on some ancillary transaction that may also be recovered. Retain the property, paying no more for it than what the promoter has paid depriving him of his profit. Where the above remedies would be inappropriate, such as when the property has been altered so as to render recession impossible and the promoter has already received his inflated price, the company may sue him for misfeasance (breach of duty to disclose). The measure of damage will be the difference between the market value of the property and the contract price.

Liabilities of Promoter
A promoter has both civil as well as criminal liability under the various provisions of the Companies Act, 1956:Promoter may be held liable for the noncompliance of the provision of the act. Promoter is liable for any untrue statement in the prospectus to a person who has subscribed for any shares or debentures on the faith of the prospectus Besides civil liability the promoters are criminally liable for any other director or office of the company

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A company may proceed against a promoter for deciet or breach of duty, where the promoters has misused or retained any property of the company or for his quality of misfeasance or breach of trust.

Further, sec 63 provides that where a promoter has authorised the issue of prospectus containing untrue statement, he is liable to punishment with imprisonment, which may extend to 2 years; or with fine which may extend to Rs. 50,000/-; or both.

Remuneration of Promoters
He may sell his own property to the company for cash at an over valuation after making full disclosure to an independent Board of Directors or to the intended shareholders. He may sell his property for fully-paid shares in the company, after making full disclosure. He may be given an option to buy further shares in the company at par. He may take commission on the shares sold. He may be paid a lump sum by the company.