Promotors in a Company: Know their Duties and Liabilities

July 04, 2016
Registrationwala

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Promotors in a Company: Know their Duties and Liabilities

Promotors in a Company: Know their Duties and Liabilities

July 04, 2016

Registrationwala

Incorporation of a company involves several steps. Basically, incorporation of the company is not about filing various forms, rather it is an inception of an idea which is conceived by an entrepreneur.

Promoter in Company

The definition of promoter is that a promoter is a person who brings an idea to the table. He is the person who does all the formalities to register a company. The promoter is also a recognised concept in India who has various responsibilities and duties toward the stakeholder.

The promoter does not necessarily mean an individual because any body corporate can be the promoter. Promoter in company conceives an idea which is the thought process. The idea is conceptualized to grow more. Promoters can be a professional promoter or managing promoter. Professional promoters are those persons who seed the idea and run the company upto a certain level of growth, after that they hand over the operation to the shareholders. Whereas managing promoters manage the company along with the formation of the company.

Being a promoter is not an easy task. These people have a thorough knowledge of the business and are ready to take calculated risk. They are visionary and have a foresighted view.

Duties and Liabilities of Promoters

Duties of Promoters are in the nature of trust and confidence i.e. a fiduciary relationship. Therefore, as an ethical person, he has to disclose all the material facts or information regarding incorporation of the company. It is so because before the incorporation, the company is not in existence, therefore, there can't be a valid contract between promoters and proposed company. It is expected from the promoters that he should not make any secrets profits out of any transaction that occurred before incorporation of the company.

The Promoter is a key person in the formation of the company. Therefore, his name is mentioned in various documents including prospectus or offer documents. If there is any untrue statement in these documents then he shall be held liable for it. This could attract not only civil liability but criminal liability as well.

Problems faced by Promoter

The major legal hurdle which is faced by the promoter is that of establishing the legal relationship between promoters and proposed company. Because of this, suppliers and other parties are reluctant to enter into any contract with the promoters.

To do away with this problem, there were some amendments made in the Specific Relief Act to validate these kinds of contracts. This validation power must be incorporated in the Memorandum of Association so that after incorporation of the company these contracts can be confirmed by the company.

Conclusion

The promoters of a company play an important role in starting and formation of a company. They are the ones who bring the initial idea, handle all the formalities and make sure that the company registration process is smooth and successful. The promoters can be individual or body corporates, and it is their duty to act in an ethical and responsible manner. They must disclose all the necessary details about the company's formation. All in all, the promoters are key to early success and growth of a company!

Frequently Asked Questions (FAQs)

Q1. Who is promoter of a company?

A. Promoter in company law is defined as a person or entity that initiates the formation of a company and carries out all the necessary actions which are required during company incorporation.

Q2. What is the legal position of a promoter of a company?

A. The legal position of promoter is fiduciary, which means they have a duty to act in the best interest of the business and disclose all the necessary details. As the company does not yet exist when a promoter is hired, they cannot be considered as agents or employees of the company.

Q3. What are the rights of promoters?

A. Some rights of promoters include right of indemnity, right of preliminary expenses, and right of remuneration.

Post updated on: 22-10-2024