Promotion of a company is concerned with taking the steps necessary for incorporation.
(a) Definition
"Promoter" is not defined in the Companies Act.
Some attempts at definition have been made by the courts:
Whaley Bridge Printing Co v Green (Case 2)
Whether someone is acting as promoter of a company is a question of fact rather than a question of law.
(b) Duties of Promoters
In the 19th century, it was common for promoters to sell their own property to a newly formed company at an inflated price, or to acquire assets for the company and receive a commission from the seller.
The courts then began to impose a fiduciary duty on promoters similar to that imposed on agents. A promoter must disclose any profit or potential conflict of interest to either:
(ii) existing or intended shareholders.
(c) Remedies for Breach of Promoters Duty
(i) Where promoter has sold his own property to the company, without disclosing this - the company can rescind the contract and recover the purchase price:
(ii)The promoter may have to account to the company for any profit he has made.
(iii)The company may be able to sue the promoter for damages for breach of fiduciary duty.
(d) Payment of Promoters
A company cannot enter into a contract before incorporation - so a promoter has no legal claim against the company for fees and expenses.
In Scotland, memorandum or articles of the company can be drawn up with a provision that the company will pay fees and expenses incurred in promoting the company.
(e) Suspension of Promoters
Company Directors Disqualification Act 1986, s.2(1)
The court can make a disqualification order against a person who has been convicted of an indictable offence in connection with the promotion, formation or management of a company.
The order can be for a maximum of 15 years - a person who is disqualified is prohibited from directly or indirectly taking part in the promotion or formation of a company.