Promotion U/S 2(69) of the companies Act 2013 promoter means a person: Who has been named as such in a prospectus Who has control over the affairs of the company directly or indirectly In whose advice or directions the B.O.D is accustomed to act

Functions of a promoter Discovery of idea Detailed investigation Assembling of resources Preparing preliminary documents Entering into preliminary contracts Naming a company Appointment of bankers, brokers, solicitors and underwriters

Legal Position of a Promoter Not to make any profit directly or indirectly at the expense of the company. The old ‘Olempia’ company was in difficulties and the debentures Were worth very little.. A syndicate consisting of X,Y and Z purchased a great number of debentures very cheaply. Then they purchased ‘Olempia’ for 1,40,000 pounds and sold it to a new company which they promoted for 1,80,000 pounds. Consequently the debentures were paid in full out of 1,40,000 pounds and the syndicate made a profit of 20,000 pounds on debentures. X, Y and Z became directors of the company. they disclosed their profit of 40,000 pounds but not their profit of 20,000 pounds. It was held that there was not sufficient disclosure and X, Y and Z must pay 20,000 pounds to the company. (Gluckstein v. Barnes (1990)A.C.240)

There must honest disclosure by the promoter to the company about all material facts. Erlanger v New Sombrero Phosphate Co. (1878) - A syndicate of which E was the head purchased an island containing mines of phosphate for 55,000 pounds. E then formed a company to buy this island. A contract was made between X a nominee of the syndicate and the company for its purchase at 1,10,000 pounds. The details of the sale were not disclosed to the shareholders or to an indepnedent board of directors. The company now sought to rescind the contract of sale. It was held that as there had been no disclosure by the promoters of the profit they were making, the company was entitled to rescind the contract.

Rights of promoters Right to receive preliminary expenses Right to recover proportionate amount from the co-promoters Right to remuneration

Liability of promoters Liable u/s 447 for false supply of information or suppressing any material fact or information Non compliance of the requirements of the prospectus u/s 26 Liable u/s 36 for inclusion or omission of any matter in the prospectus which is misleading. Liable u/s 42 for making an offer or invitation of securities to a section of public otherwise than through issue of prospectus by way of private placement . Failure to make full disclosure or non disclosure regarding special business to be transacted at a general meeting.(fine 5 times of the amount of benefit 50,000 w.e.i.h) Disqualification of promoters for 6 years if by tribunal a promoter is found mismanaging the funds of the company. Non co-operation to the liquidators of the company(fine 50,000 or imprisonment 6 months) If liquidator find the reason for closure of the business is fraud committed by the promoter. If promoter is guilty of misfeasance or breach of trust.

Incorporation of a compny Availability of name Document to be filed with the registrar 1. M.O.A 2. A.O.A 3.Declaration 4. Affidavit 5. Address 6.Particulars of subscribers 7. Particulars of first directors 8. Particulars of the interest of first directors in other firms or bodies corporate 9.Filing of agreement 10. notice of registered must be made 11.Statutory declaration of compliance 12. Registration by ROC

Certificate of incorporation Conclusiveness of certificate of incorporation Jubilee cotton Mills v.lee

Commencement of business Both private and public company can commence business after getting certificate of incorporation.

Pre incorporation contracts That when the company is registered, it is not bound by the preliminary contracts That the company when registered can not ratify the agreement Agent would be personally liable under such agreement The company can not enforce the preliminary agreement