Promoters in company law

 In company law, "promoters" play a crucial role in the formation of a company. Here's a

breakdown of their significance:

Definition and Role:

● A promoter is essentially the person or group of people who take the initiative to form a

company.

● They conceive the business idea, take the necessary steps to bring the company into

existence, and handle the preliminary arrangements.

● This includes activities like:

○ Deciding the company's name and objectives.

○ Preparing the necessary documents for incorporation.

○ Arranging for the initial capital.

○ Entering into preliminary contracts.

Key Aspects:

● Preliminary Steps:

○ Promoters are involved in the initial stages of company formation, often before the

company is legally incorporated.

● Fiduciary Duty:

○ Promoters have a fiduciary duty towards the company, meaning they must act in

good faith and in the company's best interests.

○ They must disclose any potential conflicts of interest and avoid making secret

profits.

● Legal Position:

○ The legal position of a promoter is unique. They are neither agents nor trustees of

the company, but they have certain responsibilities towards it.

○ According to section 2 (69) of the Companies Act, 2013, a promoter is a person:

■ who has been named as such in a prospectus or is identified by the company

in the annual return.

■ who has control over the affairs of the company, directly or indirectly.

■ in accordance with whose advice, directions or instructions the Board of

Directors of the company is accustomed to act.

Responsibilities:

● Disclosing all material facts.

● Avoiding conflicts of interest.

● Ensuring the accuracy of information in the prospectus.

In essence, promoters are the driving force behind the creation of a company, and their actions

have a significant impact on its future.