ANALYSIS OF THE POSITION OF PROMOTER UNDER THE COMPANIES ACT, 2013.

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INTRODUCTION

The promoter is significant for the starting of new organization as the promoter handles therelationship with the other co-advertisers, board individuals and investors whom the companymight recruit. The promoter is additionally capable to deal with any exchanges and other business meeting with investors which is essential for the exchange for the organization.

 Meanwhile,the promoter likewise significant for the organization as they liable for the talking, locating and guarantee that the board parts are appropriate for the organization. The pormoter has information ofthe monetary, the monetary circumstance of the organization and full control to make better decision for the organization.

The organization needs an promoter for the pre-fuse contracts. Since the organization has notexited yet, the promoter can’t be specialist for the organization however have lawful relationship with thecompany. The promoter likewise will be the one that takes obligated for any agreement identified with thecompany as they enter for the starting organization. Accordingly, the promoter plays importantroles during the time spent dispatching an organization.

The promoter is vital for make decision regarding the name of the organization, the measure of offer capital, type of offer capital, location of its enlisted office, the lawful counselor, the reviewers, the investors, to settle starter costs, course of action of the enrollment of the organization to get testament, make arrangement for promotion and make fundamental agreements with merchants.

The promoter has trustee obligation towards other inside the future organization which implies legalduties to act independently in interest of other gathering. The advance ought to have obligation with bone fideor sincere goal to different gatherings engaged with the undertaking. The interest of thecompany ought to be served before the interest of the advertiser with exclusive expectations of devotion andhonesty.

One of the fiduciary obligations of the promoter is obligation to unveil secret benefit made by the promoterout of the forthcoming organization. The promoter isn’t denied to make any benefit before the incorporation of the organization yet the advertiser are unallowed to make any mysterious benefits usingthe force of advertiser without the information and assent of different gatherings engaged with thenew organization.

Company enactment in india altogether take after the organization enactment of the England. The principal enactment in idia as to the comappnies was passedin the year 1850 which resemebled the English Companies Act, 1844. After which companires Act in idnia saw tremedrous development and changes. The Act got extensivly amemded in the year 1936 and other minor alterations were after that.

Indian Law provides for two forms of organisation 1. Partnetship 2. Company. Though the word cpmpany is used colloquilly for both the law regards a organisation as a company of if it is incorporated under the Companies Act.

Company becomes an intrusmental part of the society rights after its incorporation as a sepearate legal entity. But the harships faced before the incorporation of company is vast and enormous. This process starts from the day 1 when a person decides to start a comapany[1]. A Promoter is a person who has been attached to the business from the beginning.

 This person can also be referred as the founder of the business as he is the one of the pioneers of that business. He is the person who is responsible for the first agreement entered by the company before its incorporation. Infact the promoter first conceives the idea of  building a business at the particular palce and time and he is the person who bring that imaginery existence of the company into relaity. The promoter in nuilding this process he will acquire assiting from various professionals like aSolicitors, Accountatns, Notary, Registrar etc. 301.2

We can define the expression of the Company promoter as a party who instruments the first agreemts of the company, prospectus, raising capitals and beginging the comapany’s legal exisitence. This research paper will study on the various aspects of the company promoter like his legal position in the companies Act, 2013 , duties, liability etc. Further to that the Research paper will also focus on landmark judicial pronouncements which cover the aspects of company promoter and conclude the study with study on the diffuclties faces by the promoters.

MEANING AND DEFINITION OF PROMOTER

 General Understanding of Promoter

It is obvious from the prior that “promoter” is utilized in like manner speech to signify any individual, corporate, partner, affiliation or organization which has found a way every one of the essential ways to make and shape an organization and set it going. The advertiser begins the plan for the arrangement of an organization; gets together the endorsers.

Joining of Companies and Matters Incidental Thereto the update, gets the Memorandum and Articles arranged, executed and enlisted, discovers the financiers, intermediaries and legal advisors, tracks down the principal chiefs, settles the particulars of primer agreements with merchants and concurrence with guarantors, and makes game plan for planning, commercial and course of the outline and situation of the capital. Yet, an individual who simply acts in an expert limit for the advertiser, for example, a specialist who draws up an arrangement or articles, a bookkeeper or valuer who gets ready figures or valuation for the benefit of an advertiser, and who is paid for something similar, isn’t an advertiser

Definition of Promoter – SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

According to SEBI[2] the word “promoter” includes:

(i) the person or persons who are in control of the issuer;

(ii) the person or persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities are offered to public;

(iii) the person or persons named in the offer document as promoters.

DIFFERENT TYPES OF PROMOTER

Professional promoters:

There are companies which particularly specialise in company promotion, including its incorporation and flotation, before transferring it over to the shareholders or their Directors of the company.

Occasional promoters:

These promoters take interest in floating process of the company. They are not engaged in promotion work on a regular basis. They are not professional or regular promoters but they take up t his promotion work on an occasional basis.

Entrepreneur promoters:

They are both promoters and entrepreneurs. They conceive the idea of a new business unit, do the groundwork to establish it and may subsequently become a part of the management. This type of promoters are the general promoters and this kind of work help I cost reduction in hiring the specialised person to do a particular job.

Finance promoter:

Some financial institutions, like investment banks or industrial banks, take up the promotion of a company with a view to finding opportunities for investment and help them establish themselves in the market.

LEGAL POSITION OF A PROMOTER:

A promoter is neither a trustee nor an agent of the company as a there is not legal existence as such till now[3]. He stands in the fiduciary position before the formation/ incorporation of the company. But this doesn’t exclude him from any of the liabilities towards the shareholders or the third parties with regard to the contracts he entre into before the incorporation.

This fiduciary relationship bars the company promoter from making any kind of secret profit from the business. He has a further to duty to disclose the profits that he derives out of the transaction that he carries out in the name of the company.  The contracts may be rescinded if the obligation under the fiduciary relationship are not carried out by the company promoter in a proper way.

JUDICIAL PRONOURNCEMENTS

In the casse of “Bosher v. Richmond land and co[8] the word comoany promoter waas explained. A promoter is a person who bring s the idea aof forming the comoany and incororation. He brings together the people who are interested in form a business form of organisation and he sets in the motion the machinery of the company which leads to the formation itself.

In the case of “Twycross v. Grant[9] the promoter wasa observed ass a person who forms a comapany with reference to a given project, and to set it going and who takes the significant steps to achieve the purpose.

In the case of “Lagunas Nitrate Co. V. Lagunas Syndicate[10]” it was explained that the promoter is a person need not necessairly associated to the organisation from its beginning but who subsequently helps to arrage the floating of its capital.

In the case of “Prabir kumar v. Rmanai Ramasway[11]” the Hon’ble Madras High Court observed that to fix liability on the promoter, it is not significant that he should either be a signator to the Memorandum of Association or Articles of Association or he should be a shareholder or director of the company. The civil liabilty of the promoter sustains to the company and ot the third parties with regard to the contracts that the  heentered into before th incorporation of the company.

In the weavers Mills Ltd. V. Balkies Ammal[12], the Hon’ble Madras High court held that the if the company doesn’t ratify or adopt the pre- incorporation contract under the Specific relief Act, hen the common law principle would be applicable and the promoters will be liable for breach of contract.

CONCLUSION

The promoter of the company being the first person to start the ocmpany and bring the idea of formation of company and his existence has got lot of lialities and dutes in itself[13]. From this research paper we can understand that the promoter plays and indispensable role in promotion and there are also huge expenses involved in the promotion which need meitculous knowledge in business and law. This promoter also inculcate a huge responsibility and risk factor when he starts a business. This is an important feature of an Entrepreneur in the starting of the business.

Risk management and future prospects of the business has to be carefully planned and taken forward. Before registering of the companies with the registrar the companies need to go throguh various steps in its formation like formaing of the Memorandum of Association and Articles of association which is very significant for its effective existience.

The registered office and the kind of business and the prodcution matters should also be taken care by the promoter. By this we cana conclude that  promoter plays a very viable role in developing a company from its scrap and shaping it inot a better form of business[14]. He becomes and instrumental part of the business in the future course of buisness with regard to the contracts that he entrered into while  the company was not incorporated.


[1] John Musa Alewo Agbonika, The Rising Profile of a Promoter in the Life of a Company: The Nigerian View Point, 27 J.L. Pol’y & Globalization 111 (2014).

[2] SEBI Regulations, 2019

[3] Position of a promoter in establishing a Company, http://www.legalservicesindia.com/article/1775/Position-of-a-promoter-in-establishing-a-Company.html (last visited Sep 24, 2019).

[4] Section 168(3) of Companies Act, 2013.

[5] Section 35 of the Companies Act, 2013

[6] Section 300 of Companies Act, 2013.

[7] Section 42(10) of Companies Act, 2013.

[8] VA 455:16 SE 360

[9] (1) 1 Ch. D. 182

[10] (1889) 2 Ch (P, 428 C.A)

[11] (2010) 10 SCL 174

[12] AIR 1969 MAD 462

[13] Joseph H. Gross, Who is a Company Promoter, 20 span, L.J. 184 (1972).

[14] Promoters of a Company, India Filings – Learning Centre (2017), https://www.indiafilings.com/learn/promoters-of-a-company/ (last visited Sep 24, 2019).

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