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Promoter & Pre-incorporation contract - Coggle Diagram
Promoter & Pre-incorporation contract
Definition of promoter
Person who forms a company with reference to a given project and to set it going & takes necessary steps to accomplish that purpose
Have interest in the company, probably to first shareholder/director of the company
Duties of promoters
Fiduciary duties
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
Secret profits
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
Corporate opportunity
Promoter shouldn't disclose confidential info
Avoid taking up contract belongs to the company
Remedies for breach of promoters' duties
Recovery of secret profit
Recission of contract & Restitution (returning)
(Putting contract back to its original position)
Unable to rescind contract if;
Restitution in whole is impossible
Delay in bringing action
Damages
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
Promoters' expenses
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
Definition of pre-incorporation contract
Contract entered become formation of company
Legal effect of pre-incorporation contract
Contract not binding on company
Company can't sue third party (vice versa)
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
Function of promoter
prepare & submit relevant documents to ROC
Identify shareholders, directors, COSEC for new company
Negotiate business contracts on behalf of company to be formed
Provisional contract
Contract made by PUBLIC company AFTER INCORPORATION but BEFORE the entitled date to commence business
Not binding on company until commencement date
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