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Define and explain the functions of promoters.

      

Define and explain the functions of promoters.

  

Answers


sharon
Section 45(5) says“A promoter is a promoter who was a party to the preparation of the prospectus.
At common law the best definition is that by Chief Justice Cockburn in the case of

Twyfords – v – Grant (1877) 2C.P.D. 469Cockburn says “a promoter is one who undertakes to form a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose.”
It may therefore be said that the promoters of a company are those responsible for its formation. They decide the scope of its business activities, they negotiate for the purchase of an existing business if necessary, they instruct advocates to prepare the necessary documents, they secure the services of directors, they provide registration fees and they carry out all other duties involved in company formation. They also take responsibility in case of a company in respect of which a prospectus is to be issued before incorporation and a report of those whose report must accompany the prospectus.

Fuctions His duty is to act bona fide towards the company. Though he may not strictly be an agent, or trustee for a company, anyone who can be properly regarded as a promoter stands in a fiduciary relationship vis-à-vis the company. This carries the duties of disclosure and proper accounting particularly a promoter must not make any profit out of promotion without disclosing to the company the nature and extent of such a Promotion. Failure to do so may lead to the recovery of the profits by the company.

Erlanger v New Sombrero Phosphates Co. (1878) 3 A.C. 1218
The facts were as follows
The promoters of a company sold a lease to the company at twice the price paid for it without disclosing this fact to the company. It was held that the promoters breached their duties and that they should have disclosed this fact to the company’s board of directors. As Lord Cairns said

“the owner of the property who promotes and forms that company to which he sells his property is bound to take care that he sells it to the company through the medium of a Board of Directors who can exercise an independent judgment on the transaction and who are not left under belief that the property belongs not to the promoters and not to another person.”

Since the decision in Salomon’s case it has never been doubted that a disclosure to the members themselves will be equally effective. It would appear that disclosure must be made to the company either by making it to an independent Board of Directors or to the existing and potential members. If to the former the promoter’s duty to the company is duly discharged, thereafter, it is upon the directors to disclose to the subscribers and if made to the members, it must appear in the Prospectus and the Articles so that those who become members can have full information regarding it.

Since a promoter owes his duty to a company, in the event of any non-disclosure, the primary remedy is for the company to bring proceedings for

1.Either rescission of any contract with the promoter or
2. Recovery of any profits from the promoter.As regards Rescission, this must be exercised with keeping in normal principles of the contract.
1. The company should not have done anything to ratify the action
2.There must be restitutio in intergram (restore the parties to their original position),

sharon kalunda answered the question on April 15, 2019 at 05:45


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