A “promoter” is an individual or a group of individuals who take the initiative and actively participate in the process of forming and establishing a company.

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Promoters play a crucial role in conceptualizing a business idea, organizing the necessary resources, and taking the initial steps to incorporate a company.

Functions of a Promoter:

Conception of Business Idea:

Promoters conceive the business idea and identify the opportunity for creating a new company. They analyze market conditions, potential profitability, and feasibility.

Feasibility Study:

Promoters conduct a feasibility study to assess the viability of the business idea. This study includes evaluating market demand, competition, financial projections, and potential risks.

Organizing Resources:

Promoters are responsible for organizing the necessary resources, including capital, human resources, and other assets required for the formation and initial operations of the company.

Negotiations and Contracts:

Promoters negotiate with potential investors, suppliers, and other stakeholders. They may enter into preliminary contracts or agreements to secure funding, services, or other essential elements for the company.

Selection of Business Structure:

Promoters decide on the legal structure of the company, such as whether it will be a private limited company, public limited company, or another form of business entity.

Preparation of Documents:

Promoters assist in the preparation of key documents, including the Memorandum of Association (MOA) and Articles of Association (AOA), which outline the company’s constitution and rules.

Obtaining Approvals:

Promoters may be involved in obtaining necessary approvals and clearances from regulatory authorities and government bodies as required for the incorporation of the company.

Raising Capital:

Promoters play a role in raising initial capital for the company. This may involve issuing shares, negotiating with investors, or obtaining loans to fund the business.

Legal Position of a Promoter:

Fiduciary Duty:

Promoters owe a fiduciary duty to the company and its prospective shareholders. They are expected to act in good faith, with honesty, and in the best interests of the company during its formation.

Liability for Misrepresentation:

Promoters may be held personally liable for any misrepresentations or false statements made during the promotion stage, which induced others to invest in the company.

Disclosure Requirements:

Promoters are required to disclose all material information related to the company, its business, and the terms of any transactions entered into during the promotion stage.

Prohibition of Secret Profits:

Promoters are prohibited from making secret profits or benefiting personally from transactions related to the promotion of the company without proper disclosure to shareholders.

Accountability:

Promoters are accountable for their actions and decisions during the promotion stage. If their conduct is found to be fraudulent or in violation of legal requirements, they may face legal consequences.

It’s important to note that the legal position and responsibilities of promoters may vary by jurisdiction, and they are subject to the corporate laws and regulations governing the formation and operation of companies.