Promoter | Duties | Extent of Liability | Remuneration

Duties of a Promoter

The following are the important duties and liabilities of a promoter:

1. Duty to Disclose

The promoter is under a duty to disclose fully all the material facts relating to the formation of a company.

2. Not to Make any Secret Profit

The promoter, as a rule, should not make any secret profit at the expense of the company, which is being promoted by him.

3. Duty to Give Benefits of Negotiations to the Company

The promoter, as soon as he starts to act for the formation of the proposed company should give to the company the benefit of all negotiations or contracts entered into by him in respect of the company.

4. Not to make Unfair Use of his Position

The promoter enjoys extensive powers. Therefore, he should not make unfair use of his position or the powers vested in him. Any unfair exercise of power shall render him liable to the company.

Extent of the Liability of Promoters

A promoter of a company is answerable for all wrongs he has committed. He is liable not only to the company but also to third parties. Even if he dies, his death cannot relieve his estate from this liability.

Similarly, the insolvency or insanity of the promoter does not release him from his liability. In the event of winding up, the liquidator or a contributory can hold him liable for misfeasance. He can be examined either privately or publicly.

Remuneration to the Promoter

Strictly speaking, the promoter has no right to claim any remuneration. But in practice, the promoter is allowed to take reasonable remuneration for his services. Generally, he is paid in any one of the following ways:

1. He may be paid a lump sum in cash.

2. He may be given fully paid up shares in the company or partly in cash and partly in shares or debentures.

3. He may be paid a commission on the shares sold.

4. If he sells his own business he may be paid on the basis of the profit disclosed by him.

Limitations of Promotional Remuneration

The promoter has to apply to the Government for getting sanction of the promotional remuneration. The Government gives the sanction subject to the following limitations:

1. If a Managing Director manages the company, promotional remuneration should not exceed 1.5% of the estimated cost of the project.

2. If the Board manages the company, such remuneration should not exceed 10% of the estimated cost of the project.

3. The Government may ask the company to produce a list showing the details of expenses.