Promoters’

Q-01: Who are Promoters’?

Ans. of Q-01:

The person who build a company are called “promoters “ .Although it is neither define in the company act 1994, nor its existence is traceable except in section 145 of the Act, They are the persons who undertake all the trouble to prepare the necessary documents, papers etc. up to its incorporation with the registrar of joint stock companies & firms. A promoter could even be an organization.

The company Act does not define a promoter but in several legal decisions the learned judges have stated that it is a business term and not a legal one.

 A promoter is a person who conceives the idea, studies the prospectus of business critically ,chalks out a tentative scheme of organization, brings together  the requisite men ,materials machinery ,money and managerial ability and floats the enterprise.

Q-02: Whats type of Promoters’?

Ans. of Q-02:

The promoters may be classified in to a few type :

1. Ordinary Promoters’
2. Occasional Promoters’
3. Professional Promoters’
   
   
   Q-03: Discibe the function of promoters ?
   Ans. of Q-03:
   The functions of the promoters are many. They do the followings:

1. At first they sit together to set out the nature of the proposed company ,Its objects ,by laws ,capital etc.
2. They obtain the name clearance from the registrar , Joint stock companies & firms for the proposed company .
3. They reduce the whole discussion ,plans and programmers in to a set from called memorandum of association and articles of associations,
4. They bear all the initial expenses and enter into pre-incorporation contracts at their own peril on behalf of the the proposed company.
5. They get the memorandum and articles of association printed ,fill in the forms for submission to the registrar. (Three Copies ),
6. Thereafter they affix necessary stamp in one set and pay the requisite fees an authorized capital and submit the memorandum and articles of association for registration to the registrar of joint stock companies and firms .
7. If it is a private company, The company can start business from the date of its incorporation and duly of the promoters is over.
8. If the company is public company limited by share, then the promoters prepare “Prospectus “ for advertisement to sell the securities (debenture ) and shares or prepare the “Statement of lieu of prospectus” and submit it with the registrar,
9. After either submitting the statement in lieu of prospectus or advertisement of the prospectus and attaining minimum subscription they apply for the “ Commencement of business certificate “ and PLC s start business after getting the certificate of Commencement and the function of the promoters in case of “PLC s ends here “.
   
   
   Q-04 : Describe the legal responsibility and liability of the promoters .
   Ans. for Q-04 :
   The promoters have liabilities towards the company for which they may be ccounted for and sued as well for damages.
   The liabilities mingled with responsibilities could be summarized as follows:

1. Fiduciary relationship
2. Secret Profit
3. Expressed profit
4. Representation
5. Liability on pre-inspection contracts.
6. Trustee
7. Liability in respect of prospectus
8. Duty to registrar
9. Liability on Death and Bankrupts.
   Q-05:What are the legal responsibilities of a promoters relating to false and misshaping statements made in a prospectus ?   
   Ans. of Q-05:
   A promoters is held liable for his false and misleading statement . The promoter can be held liable in the following manner:

1. Can be charge under S-146 and Sec.397 of the companies Act. 1994.
2. Can be sued for damage
3. His own shares (if any ) be forfeited .
4. The shareholder who bought the share on the basis of his false or misleading statement may sue for damages.
5. Can be held criminally liable,
6. His heirs (property ) can be held liable if he dies during pendency of his liability .
7. He may be called to witness before a court of law ,[sec.-279]

Q-06:Discribe rights of the promoters .

Ans. for Q-06:

A promoter has the following rights in respect of promoting a company:

1. Responsible remuneration
2. Costs incurred for registration and other related purposes.
3. Free shares as promoter
4. Commission on sale of shares
5. Disclosed profit by selling his own property to the company
6. Any disclosed profit,
7. Price for selling his own property to the company,
8. Indemnity against suit for false or misleading statements in the prospectus, which in reality was done in good faith.

Q-07:What are the step that a promoter has to pass though for the formation of a public limited company from promotion to the commencement of business ?

Ans. for Q-07:

The following major three steps are to be taken to form a public limited company-

1. Promotional Stage
2. Stage for registration
3. Stage for commencement of business

Details description:

1. Promotional Stage :

    At this stage more than one person promote to from a company and take following decision.

1. Selection of name and approval: At first the promoter select a name and submit to the registrar for approval. This name is not quit similar with name of other existing company.
2. Nature of Company: At this stage taking decision either the company is to be public limited or private limited.
3. Number of promoters /Numbers: In the respect of private company at least two and public company at least 7 promoters/members take all requiring arrangement to from a company.
4. Planning and implementation: At this stage promoters select the plan and prepare memorandum of association and articles of association for formation of the company.

2. Stage for registration :

    The promoter collects from registrar after paying registration fees and enclosed the following with the application-

1. Memorandum of association: It is a principal documents of a company. Its includes name address object and capital of a company.
2. Articles of association: The articles of association are the domestic regulations of the company and govern its internal administration.
3. Directors Schedule: The names of the agreed persons as directors are to be enclosed with the application for registration.
4. Letter of agreement: Submit the agreement letter directors signature by them.
5. Agreement of Qualification shares: Submit direct qualification shares.
6. Letter of Declaration: A declaration by an advocate high court or by a persion named in the articles of association a director, Manager, Security of the company compliance with all of the said requirements sham filed with the registrar.
7. Collection of Certificate of incorporation : If the register is satisfied on the above documents he listed the name of company and issue a certificate of incorporation.

1. Stage for Commencement of Business :

1. Prospectus: Publish prospectus to invite the public to issue share.
2. Declaration of Minimum subscription: A declaration of minimum subscription in the prospectus is already collected.
3. Declaration of Qualification Share: A declaration that the directors paid for their qualification share.
4. Declaration by secretary or Directors: A declaration by the secretary or Director for completion of all legal function.
5. Commencement of business :The company can start business after getting the certificate of commencement.
   Q-8 : Discuss the legal position of a promoter or of a promoter before incorporation.
   Or
   What’s do you mean by pre-incorporation contracts preliminary contracts?
   Ans. for Q-8:
   Before incorporation of the company it is sometimes necessary for the promoters to canter in to contracts with third parties as process for either registration of the company or business of the under formation company.
   Through the companies legal separate entity are not exits before incorporation so that question arises who will be the liable for this contract let us briefly consider the legal position of a promoter in such situation:

1. Promoters’ are not an agent: Since the legal entity of the company is not exists as artificial person before incorporation, So the promoters cannot be an agent of the company which he formed.
2. Promoters’ are not future trustee : Promoters are not trustee either before or after formation of company.
3. Fiduciary Position : A fiduciary relationship exists in between the company and promoters, any secret profit by the promoters in course of promotion of a company is prohibited, for such secret profit promoters should be inform to the authority, At that time authorities are the board of directors and existing and included shareholders.
4. Full Disclosure : Any profit that may be legal or illegal by the promoters accumulated during the process should be inform to authority-
   So, the promoters have some legal position in the company which they formed.
   They cannot be an agent of the company before incorporation and trustee of the company before or after incorporation.
   In fact they have the fiduciary position the company.
   Q-9: In what ways may a promoter of a company be remunerated for his services?
   
   
   Ans. for Q-9:
   
   
   Promoter:
   
   
    A promoter may have three possible positions:

1.  He may be a promoter to acquire the property for the company, which case, all the rules of agency would apply. Any profit he makes will belong to the company.
2.  He may acquire the property himself and then decide to form a company and sell the property to it, in which case no question of agency or trusteeship arises. He can make what bargain he chooses without begin under any obligation to disclose the profits.
3.  He may acquire the property with a view to re sell it to the company which he intends to promote, in which case he becomes bound by the fiduciary obligation and if he make a profit he must disclose it to the company.
4.  A Promoter may be issued shares for his remuneration or as founder share

Q-10: What are the three possible positions of promoters of a company? [May-June’02]

Ans. for Q-10 :

A promoter may have three possible positions:

1. He may be a promoter to acquire the property for the company, in which case, all the rules of agency would apply. Any profit he makes will belong to the company.
2. He may acquire the property himself and then decide to form a company and sell the property to it, in which case no question of agency or trusteeship arises. He can make what bargain he chooses without begin under any obligation to disclose the profits.
3. He may acquire the property with a view to re sell it to the company which he intends to promote, in which case he becomes bound by the fiduciary obligation and if he make a profit he must disclose it to the company.

Q-11:What is Prospectus? What are its main contents? Is it obligatory on a company to issue prospectus? What are the rights of a shareholder against the company and its directors and promoters for untrue and misleading statements in the prospectus?

Ans. for Q-11:

Prospectus, Information to be included in Prospectus as per SEC listing regulation:

A prospectus is an invitation by the offer or company to the public to purchase shares or debenture of that company. In other words a prospectus may be defined as any document that includes any notices, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any share or debentures of a body corporate.

As per SEC listing regulation following documents is to be included in the prospectus:

Information to be included in the prospectus:

1. Cover page:

1. Name of the company
2. The amount and type securities being issue
3. The offering price of securities
4. The amount of commission' being paid
5. The name and address of underwriters
6. The date of prospectus
7. Consent clause in bold type
       2. Table of Contents (in side cover page)
       3. Risk factors
       4. Use of proceeds
       5. Description of business
       6. Description of property
       7. Plant of operation and discussion of financial condition
       8. Director and officers
       9. Involvement of officers and directors in certain legal proceedings
      10. Certain relationship and related transactions
      11. Executive compositions
      12. Option granted to officers, directors and employees
      13. Transaction with promoters
      14. Ownership of the companies securities
      15. Determination of offering price
      16. Plan of distribution
      17. Market for securities being offered
      18. Financial statements requirements etc.
   
   
   Q-12:Do all the companies issue a prospectus?
   
   
   Ans. for Q-12:
   
   
   All the companies do not issue a prospectus. Only the Public Limited Companies having permission from the Securities and Exchange Commission may issue a prospectus. A public limited company which does not issue a prospectus, it shall issue a statement in lieu of prospectus.
   
   
   As per Scction-141 a Public Limited Company having a share capital and not issuing prospectus must at least 31 days before the first allotment of shares or debentures, file with the Registrar for registration a statement in lieu of prospectus. The statement must be in the form prescribed in schedule - IV of the Companies Act-1994.
   
   
   In case of untrue and misleading information furnished in the prospectus its promoters and directors will be held liable. The shareholders may claim to refund the value of shares allotted and the Shareholders, may claim demurrage for any losses incurred for such misstatement furnished in the prospectus. But they cannot retain the share and claim the demurrage simultaneously.