Promoter & Pre-incorporation contract

Definition of promoter

Duties of promoters

Remedies for breach of promoters' duties

Promoters' expenses

Definition of pre-incorporation contract

Legal effect of pre-incorporation contract

Person who forms a company with reference to a given project and to set it going & takes necessary steps to accomplish that purpose

Function of promoter

  1. prepare & submit relevant documents to ROC
  2. Identify shareholders, directors, COSEC for new company
  3. Negotiate business contracts on behalf of company to be formed

Have interest in the company, probably to first shareholder/director of the company

Fiduciary duties

Secret profits

Corporate opportunity

Must act bona fide & not have conflict of interests with company

Proper disclosure of any personal advantage from acting as promoter

Disclosure must be made to an BOD (independent) and members

Contract will be voidable at co's option, if non disclosure

Profit is not secret is proper disclosure is made

Disclosure must be full, frank, and explicit & contain info relating to the nature of the interest of the promoters & other material facts

Contract will be voidable at co's option, if non disclosure

Promoter shouldn't disclose confidential info

Avoid taking up contract belongs to the company

Recovery of secret profit

Recission of contract & Restitution (returning)
(Putting contract back to its original position)

Damages

Unable to rescind contract if;

  1. Restitution in whole is impossible
  2. Delay in bringing action

No direct fiduciary between promoters and individual members

There's a prospectus offer

Promoter has statutory liability to compensate shareholders who suffered loss from untrue/misleading statement or omission

No right at common law to expect reimbursement of promotional expenses

Usually constitution will state that biz of co shall be managed by directors who may exercise all powers of the co

Directors may therefore pay the promoters their expenses

Contract entered become formation of company

  1. Contract not binding on company
  2. Company can't sue third party (vice versa)
  3. Promoter personally liable to the contract (except there's clear exclusion of personal liability at the time of contract)

At time of contract

Company didn't exist, No legal personality, No legal capacity

Provisional contract

Ratification

Company bound by contract as if the company has been in existence at the date of the contract

Pass BOARD Resolution

Effect

Liability of promoter will be removed

Can be implied

Contract made by PUBLIC company AFTER INCORPORATION but BEFORE the entitled date to commence business

Not binding on company until commencement date