PROMOTERS

Updated as at sem 1 2021/2022

 Introduction
Entrepreneurs may come together to form a company to carry on their business. They may take or instruct others to
take the steps required by law to incorporate a company. They are known as the promoters of the company.

The persons who conceive an idea of a company, then decide and do the necessary work for the formation of the
company are called the Promoters of a company.

Is a person who brings about the incorporation of a company and organization of a corporation.

The promoters may be a person who are actually interested in the company or may be professionals such as solicitor
or accountants.

A promoter may be a natural person, for example, when the sole proprietor or partners promote a company to take
over his/their business.

A promoter may also be a company, for example, where a company is incorporating a wholly owned subsidiary or a
subsidiary
 Introduction

Twycross v. Grant (1877), promoters are the one who

undertakes to form a company with reference to give project
and to set it going, and who takes the necessary steps to
accomplish the purpose.

Sometimes, a few persons may only act as professionals

who help the promoters on behalf of the company like the
solicitor and get paid for their services.
 Fiduciary duty

01 02
A promoter stands in a Duty to act in good faith
fiduciary relationship for the benefit of the
with the company company

03 04
Duty not to have any Duty of making full and
conflict of interest with frank disclosure of his
the company interest
 As a fiduciary, a promoter cannot:

exercise undue have any conflict of

make secret profit or influence over the interest with the
obtain any benefit at company company
the expense of the
company
 Erlanger v. New Sombrero Phospate Co .
Facts: The promoters purchased a piece of land of
₤55,000. Then they incorporated a company and sold
the land for ₤110,000 through a nominee. The
company’s article of association did provide for the
purchase of land. The company’s promoters who
were also the company directors ratified the purchase
of land
 Erlanger v. New Sombrero Phospate Co .
Held: The court held that the promoters had breached
their fiduciary duty since they failed to make full and
frank disclosure of their interest in the contract to an
independent board of directors. Thus, the contract
was voidable at the option of the company.
 Full and frank disclosure

Payment can be made in various forms such as

commission, shares, option to subscribe for share.

The disclosure must be full and frank.

A partial disclosure will not be a satisfactory

discharge of a promoter’s duty.
 Habib Abdul Rahman v. Abdul Kader

The company that was promoted by Abd Kader and another person
bought a piece of land from another company.
This land was divided and offered for sale to the public.
Abd Kader set up a partnership with three others and bought one
lot.
He did not disclose that he had an interest in the purchase. The
other shareholders sought to have the sale rescinded on the ground
of his failure to disclose his interest.
 Habib Abdul Rahman v. Abdul Kader

The court held that the fact that the promoter did not disclose his
interest when he bought the land rom the company, he had
promoted was grounds to allow rescission of the contract.
 Remedies for breach of duties
Recission of Recovery of
a contract secret profit

Damages
 Rescission of a contract

Company can Example; the company agreed

rescind/cancel any to purchase office furniture from
contract entered by the another company which belongs
company in ignorance of to the promoter.
the fact due to the Upon discovery of the true fact,
promoter breach of duty. the company may rescind the
contract.
 Lagunas Nitrate Co Ltd v Lagunas Syndicate

the land was already mined. As the

company could no longer restore the land to its original condition
to the promoter, the court
could not order rescission of the contract.
Recovery of the promoter’s secret
profit

If the company affirms

Example; Promoters recommend
the contract or if
certain contractor to the company
rescission is impossible,
and later get secret commission
the company may
from the contractors.
recover the promoter’s
Thus, upon discovery, the company
secret profit.
may recover the secret profit.
 Gluckstein v Barnes

the promoter disclosed it made a profit of £40,000 but not

the additional profit of £20,000 on transactions connected to the
property. The company could
recover the profit of £20,000 which was not disclosed in the
company’s prospectus.
 Damages

Example; if the promoters buy an

If rescission is
asset from other and then sell it to
impossible, the company
the company at the higher price,
may sue the promoters
the company can sue the
for breach of duties and
promoters for the different in
can claim for damages.
price.
 Tracy v Mandaley

the company has to

either rescind the contract or affirm the contract on the promoter’s
terms. The company cannot
claim for the profit made by the promoter, however, it can claim
for damages if it has suffered
loss.