SHALMOLI GHOSH

A90821517047

LAW343

ROLE, RIGHTS AND DUTIES OF A PROMOTOR OF A COMPANY

DEFINITION

A promoter is a person or group of people who comes together with an idea for setting-up a business at a
particular place and incorporates a company to achieve it. By the process called incorporation, a company
comes into existence. A promoter can be an individual, an association or people, a company or a firm.
After the idea to start a business, detailed investigations are done by the promoters to find out the
weakness and the strength of the idea and also determines the capital needed to start the business and also
estimates operating expenses and income.

The first step to form a company or a business is the process known as ‘promotion’ which the promoter
encourages the others to contribute capital to a proposed company or a business before the incorporation
of the company. A promoter, before or after getting the certificate of incorporation can enter into a
contract on behalf of the company and can arrange the share issues in the name of the company.

According to section 2(69) of the Companies Act, 2013 the term ‘Promoter’ can be defined as the
following:

1. A person who has control over the affairs of the company, directly or indirectly as a
shareholder, director or otherwise; or
2. A person who has been named as such in a particular or is identified by the company in the
annual return referred to in section 92; or
3. A person in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act:
Provided that sub-clause (c) shall not apply to a person who is acting merely in a professional capacity.

ROLE OF A PROMOTOR

1. Promoter has to form ideas for the formation of the company and explore the possibilities
for the company.
2. Promoter conducts negotiation for the purchase of the business.
3. Promoter collects the number for signing of the AOA and MOA
4. Promoter decides the name of the company, the location of the registered office and the
amount and the form of the share capital.
5. Promoter gets the MOA and AOA drafted and printed.
6. He arranges the minimum subscription for the company.
7. He also arranges the certificate of incorporation and the registration of the company.
DUTIES OF A PROMOTER
A promoter has a significant position and has a wide range of powers in the formation of a company. But
it is very interesting to know that a promoter do not hold any legal position as it is neither an agent nor a
trustee of the company. However, it doesn’t signify that he does not have any legal relationship with the
company. A promoter has a financial relation to the company they support and to those persons, whom
they persuade to become shareholders in it.

1. Disclose the hidden profit: The promoter should not make any hidden or secret profits. If
he has any hidden profit he has to disclose the same.
2. Disclose all the material facts: He must disclose all the material facts and information.
3. Must make good to the company: The promoter must make his best for the company. He
has a fiduciary relationship with the company.
4. To disclose private arrangement: The promoter must disclose all the private arrangement
that results him profit by the promotion of the company.
RIGHTS OF A PROMOTER

1. Right of indemnity

When there is more than one person as a promoter of the company then one promoter can claim
compensation or damages paid by him against the other. Promoters are jointly liable for any false
statement issues in the prospectus and for any hidden profits.

2. Right to receive legitimate expenses

A promoter is entitled to receive all the preliminary legitimate expenses which had been incurred by him
in the process of the formation of the company such as cost of advertisement, fee of solicitor etc.

3. Right to receive remuneration

A promoter doesn’t have any right against the company for his remuneration unless there is a contract to
that effect.