Meaning of Company Promotion

Whenever we hear about the business format like a company, then the curiosity to know what is the meaning of company promotion. How it is formed.

When any In this article we will know what is Company promotion And who is a promoter In this article, we will know. There is a golden line at the end of the article. Please see the full article

Promotion is the first step in the formation of a company, in which the idea of setting up a company is generated and necessary action is taken to translate it into action. In this way, the work of promotion of the company starts with the generation of new ideas and continues until the company is established legally, under this it is also considered what will be the business area of the company, From where will its essential material be obtained, from which sources will the capital be obtained for it, what legal procedures will have to be done for its establishment? Etcetera

who is a promoter

the persons who bring the company into existence are known as promoters

Promoter refers to such persons who bring the idea of the formation of the company in their mind and do the necessary research and form the company according to a definite plan. In other words, promoters refer to individuals who do business research and plan the operations of the company. The place of promoters is very important in the formation and development of the company. The promoter can be an individual, a group of individuals or a firm, or a company.

"The promoter is the person who plans the formation of the company, prepares the memorandum and articles of association, gets them registered and selects the first directors, sets the terms of the preliminary contracts and prospectus." and arranges to publish the prospectus and collect the capital."

3. As per section 2(69) of the Indian Companies Act 2013, “promoter” means a person whose name is mentioned or numbered as a promoter in the prospectus or who is identified as a promoter in the annual return of the company or who, as a shareholder or director or otherwise, has direct or indirect control over the affairs of the company or on whose advice or directions the board of directors of the company is in the habit of acting, but if any person in his professional capacity If he gives, then he will not be considered as a promoter.

The legal status of the promoters

The promoter does all the work from the promotion of the company to the start of its business, so all the services of a promoter are exceptional in the work of company formation. Even though all the services of a promoter are exceptional, the legal status of a promoter with the company is different. It is of governed relationship i.e. it is assumed that his relationship with the company is based on trust and whatever act he has done after incorporation, the company and its shareholders have to trust him. Thus it can be said that the promoters carry out all the work from the conception of the formation of the company to its formal establishment. Due to this, they have an important position in the company. From the legal point of view, they are neither trustees nor representatives of the company because the company does not have any legal existence at the stage of promotion, only a fiduciary relationship is found between the promoters and the company. The position of the promoter in the company can be explained as follows

1. The promoter is not the agent of the company, although the promoter does all the work for the formation of the company, still, the promoter cannot be the agent of the company. This is because the company cannot verify the actions taken by the promoter. Agency by ratification can be established only when the principal is in existence at the time of making the contract. But when the promoter acts or contracts, then the company does not exist, that is, the amalgamation does not take place, as a result, the company cannot ratify the contracts entered into by the promoter and the agency relationship between the company and the promoter is also not established. It is possible Therefore, in many important decisions, the fact that the promoter is not an agent of the company has been accepted.

2. Promoters are not trustees of the company The promoter is also not a trustee of the company for the same reason given about not being an agent. In other words, until the company comes into existence, it cannot even appoint its own trustees. Therefore, no liability can arise for the promoter as a trustee also.

3. The promoter has a fiduciary relationship with the company. The promoter is neither an agent nor a fiduciary of the company formed by him. He has only a fiduciary relationship with the company. It is noteworthy that a fiduciary relationship means trust, confidence, and goodwill. However, the promoters are neither the agents of the company. And neither is the trustee, but his position is similar to both of them, so just as all the actions of the agent and the trustee should be transparent and fair, in the same way, the actions of the promoter should also be transparent and fair.

Although it is difficult to discuss with certainty the functions of the promoters, still some of their general functions may be necessary to be discussed.

1. Seeing the creation and possibility, considering the creation of the company, and trying to fulfill its ideology.

2. Selection of qualified persons for appointment of directors.

3. Preparation of Councilor's Memorandum and Articles of Association Preparation of Councilor's Memorandum and Articles of Association for the company.

4. Obtaining the Certificate of Incorporation by registering the company.

5. Appointing Banks, Investors, and Advisors The work of appointing banks for the company is done by the promoters. Along with this, auditors and legal advisors are appointed for the company.

rights of promoters in company law

1. Authority to incur preliminary expenses

Car promoters have the right to recover from the company the necessary expenses incurred in the construction and running of the company, but to recover the expenses, they will have to present necessary certificates, but all these expenses must be by the statutes. Is.

2. Right to receive the proportionate amount from co-promoters A promoter can recover the proportionate amount from one of the co-promoters as a result of misrepresentation in the prospectus of a company.

3. The promoters who have the right to get remuneration work hard in building and operating the companies, so the companies give them remuneration as their reward. The promoter can get remuneration from the company in the following forms (1) Profit, (2) Remuneration, (3) Commission, (4) Lumpsum amount.

duties and liabilities of promoters

1. Maintaining a fiduciary relationship The promoter does not have a fiduciary relationship even towards the future members of the company, which is necessary to be maintained, he should not do any act of breach of trust.

2. To act as a fiduciary The promoter has to act as a fiduciary and work only for the benefit of the company.

3. Revealing the truth The promoter should reveal the truth about the company.

4. Information should not be kept secret No information regarding the promotion of the company should be kept secret. Keeping information secret is a misrepresentation. Similarly, if there was an incomplete explanation, then concealment is called denial of faith.

5. Non-disclosure of earned profit is illegal and prohibited. According to the decision of Salomon v. Salomon & Co., profit earned based on prior disclosure is valid.

liabilities of promoters

Some of the major responsibilities of the promoter are as follows

1. Liability for giving false information for incorporation Sometimes after the incorporation of the company, it is proved that the incorporation of the company has taken place due to any of the following reasons

(i) because of any false or untrue information or representation of facts.

(ii) because of the concealment or non-disclosure of any material fact furnished.

iii) Reasons for concealment or non-disclosure of any material fact in the declaration furnished.

(iv) because of any other fraudulent activities.

In such a case, the promoter of the company will be liable for action under section 447. Under the section, there is a provision to punish the guilty with imprisonment and a fine.

2. Liability in case of misleading information Sometimes a person subscribes to the securities of a company believing some misleading information. Because of that, he (the subscriber) has to suffer loss. In such case, the promoter shall be liable to make good the damages to every person who has suffered damages due to such a misleading description. This liability of his will be in addition to the normal punishment under this Act.

3. Liability for being unable to disclose each and every item of the special act Sometimes a special act is also done in the general meeting of the company such that

In that case, a statement of important facts for each item of particular business/work to be transacted at that meeting should be annexed to the notice of that meeting.

4. Liability for failure to return funds or assets Sometimes during scrutiny/scrutiny or during the implementation of the scheme of rehabilitation of a sick company, the Tribunal feels that the company or any promoter associated with the implementation of the scheme of rehabilitation of the sick company has committed the following offense or act

(1) has misappropriated any money or property belonging to that company;

(2) he is guilty of misconduct or corruption with him or breach of trust.

In such a case, the Tribunal may, by passing an order, direct the promoter to return that amount or property or may direct the promoter to donate a such amount as it thinks fit as compensation to the sick company or the entitled thereto.

Golden line According to Naveen Sir, "Business opportunities are discovered in promotion so that capital and organization are managed to get profit."

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