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Legal Position of Promoters

Legal Position of Promoters


The promoter performs all the functions of the company from the date of its incorporation to the stage of commencement of business. Therefore, all the services of a promoter are exceptional in the work of company formation. Services of a Promoter Notwithstanding the extraordinary, the legal status of a promoter with the company is that of a trust relationship, i.e., it is believed that his relationship with the company is based on trust and all the work he has done after the amalgamation has taken place. The company and its shareholders have to be trusted. In this way, it can be said that the promoters complete all the tasks from the conception of the formation of the company to its formal establishment, which gives them an important position in the company. From the legal point of view, they are neither Trustees nor Agents of the company because the company does not have any statutory existence at the stage of enforcement. Only trust relationship is found between the promoters and the company. The position of the promoter in the company can be explained as follows. 1. Promoter is not an agent of the company, although the promoter is responsible for all matters relating to the formation of the company.


but still the promoter cannot be an agent of the company. This is because the company cannot verify the work done by the promoter. The agency may be established by confirmation when the principal is in existence at the time of making the contract. But when the promoter does or makes a contract, then the company does not exist, that is, the amalgamation is not found, as a result the company cannot confirm the contracts made by the promoter. And also the relationship of agency between the company and the promoter cannot be established. Therefore, in many important decisions, the fact that the promoter is not an agent of the company has been accepted. 2. Promoter is not a trustee of the company – Promoter is not a trustee of the company


it happens. The reason for this is also the same as given in relation to not having an agent. In other words, the company cannot even appoint its own trustee until it comes into existence. Hence, no liability can arise even as a trustee of the promoter. 3. Promoter has a trusting relationship with the company – Promoter is neither an agent nor a trustee of the company formed by him. He has only a fiduciary relationship with the company. It is worth mentioning that by trust relationship, it is meant the relationship of trust, trust and good faith. Therefore, every work done by the promoter should be completely transparent, just and in good faith. Although the promoters are neither agents nor trustees of the company, their position is


is similar to. Therefore, just as all the work of agent and trustee should be transparent and just.


Similarly, the actions of the promoter should also be transparent and just.


Thus the promoter is neither an agent nor a trustee of the company but he has a trusting relationship with the company. This relation can be clarified from the following facts (i) Promoter not earning secret profit- It is the important duty of promoters not to earn secret profit in respect of any transaction in the company’s operational stage and if such profit is earned by them. Then the company will have to account for it and return the amount of profit. (ii) Forcing the contract – After the formation of the company, the promoters of the company’s directors


be bound by any contract which may have been entered into in the course of the enforcement of the company. (iii) Promoters not to be personally liable – If the promoters have acted in the interest of the company with due care and honesty within their rights, then they are not personally liable to the company for the losses which the company has caused. due to their errors or omissions.

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