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    Chandigarh University: University Institute of Legal Studies LAW (Legal Studies) Corporate Law I LLT 312 Sumit Sharma

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    Harneet Kaur
    This document outlines a corporate law course on classification of companies. The course objectives are for students to understand different types of companies, classify company securities, understand company registration documents, apply legal doctrines, evaluate company performance, and understand the role of company promoters. Promoters are defined as individuals who establish a company and control its affairs. They perform functions like discovering business opportunities, arranging funds, and preparing incorporation documents. Promoters have fiduciary duties to disclose profits and interests to the company. They can be held liable for prospectus misstatements or non-compliance with company laws.

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    Chandigarh University: University Institute of Legal Studies LAW (Legal Studies) Corporate Law I LLT 312 Sumit Sharma

    Uploaded by

    Harneet Kaur
    97 views17 pages
    This document outlines a corporate law course on classification of companies. The course objectives are for students to understand different types of companies, classify company securities, understand company registration documents, apply legal doctrines, evaluate company performance, and understand the role of company promoters. Promoters are defined as individuals who establish a company and control its affairs. They perform functions like discovering business opportunities, arranging funds, and preparing incorporation documents. Promoters have fiduciary duties to disclose profits and interests to the company. They can be held liable for prospectus misstatements or non-compliance with company laws.

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    This document outlines a corporate law course on classification of companies. The course objectives are for students to understand different types of companies, classify company securities, understand company registration documents, apply legal doctrines, evaluate company performance, and understand the role of company promoters. Promoters are defined as individuals who establish a company and control its affairs. They perform functions like discovering business opportunities, arranging funds, and preparing incorporation documents. Promoters have fiduciary duties to disclose profits and interests to the company. They can be held liable for prospectus misstatements or non-compliance with company laws.

    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    97 views17 pages

    Chandigarh University: University Institute of Legal Studies LAW (Legal Studies) Corporate Law I LLT 312 Sumit Sharma

    Uploaded by

    Harneet Kaur
    This document outlines a corporate law course on classification of companies. The course objectives are for students to understand different types of companies, classify company securities, understand company registration documents, apply legal doctrines, evaluate company performance, and understand the role of company promoters. Promoters are defined as individuals who establish a company and control its affairs. They perform functions like discovering business opportunities, arranging funds, and preparing incorporation documents. Promoters have fiduciary duties to disclose profits and interests to the company. They can be held liable for prospectus misstatements or non-compliance with company laws.

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    You are on page 1of 17

    CHANDIGARH UNIVERSITY

    UNIVERSITY INSTITUTE OF LEGAL STUDIES


    LAW( Legal studies)
    Corporate Law I
    LLT 312
    SUMIT SHARMA

    CLASSIFICATION OF COMPANY DISCOVER . LEARN . EMPOWER


    Course Outcome
    CO-1 The students will be able to define the word company and identify various kinds of
    companies

    CO-2 The students will be able to classify,  compare and relate securities of the company like
    Shares, debentures etc. 

    CO-3 The students will be able to sketch the documents required for registration of a company
    and its prospectus.

    CO-4 The students will be able to connect and relate different doctrines of the subject and
    illustrate the same.

    CO-5 The students will be able to judge ,criticize  and defend the working of any company
    according to company laws

    CO-6 The students will be able to design the company.

    2
    3
    Company promoter

    4
    Company promoter

    • Definition of the promoter -:


    • Promoter is defined in Section 2(69) of the Act to mean the following-
    • A person who has been named as the Promoter in the prospectus or
    the annual returns of the company or in the annual return.
    • A person who has control over the affairs of the company, directly or
    indirectly, whether as a shareholder, director or otherwise.
    • A person in accordance with whose advice or instructions the board
    of directors of a company is accustomed to act

    5
    Types of promoter

    • TYPES OF PROMOTER

    Professional Promoters Financial Promoters

    Managing Agents
    Occasional Promoters-

    6
    Types of promoter

    • Professional Promoters- A professional promoter is a person who professionally does the work
    of promoting a company and as the company is established, the promoters transfer it
    completely to the shareholders of the company. These kinds of promoters are prevalent in
    developed economies but this system hasn’t developed enough in the developing nations.
    • Occasional Promoters- These are the promoters who are not in this business per se. They take
    up promotion for one company and then go back to their original profession. For example, if a
    lawyer floats a company, he shall be an occasional promoter. People generally become an
    occasional promoter for personal reasons.
    • Financial Promoters- The financial institution in the corporate world are monetarily involved in
    the business of promoting companies who involve themselves in the financing of companies
    when the financial environment is favorable.
    • Managing Agents- The managing agents of a company can also be promoters. Such persons
    float companies and then become the managing agents of the company once the company is
    established. Managing agency system is now abolished in India.

    7
    Legal Position of promoter

    • The law does not give a term to the status of the promoters vis–a-
    vis the company.
    • It has been categorically stated that a promoter is neither a trustee nor
    an agent of the company.
    • The relationship of a promoter exists with the company even before its
    incorporation as a company.
    • Therefore, there is no specific status which is granted to promoters.
    But, they indeed are in a fiduciary relationship with the company
    • The fiduciary position puts an obligation on them to act in good faith
    when they are dealing with or on behalf of the company.
    8
    Position of promoters in Companies Act, 2013
    • The new Companies Act, 2013 has defined promoter in Section 2(69) as;

    “promoter” means a person—

    a) who has been named as such in a prospectus or is identified by the company in the annual return referred
    to in section 92; or
    b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director
    or otherwise; or
    c) in accordance with whose advice, directions or instructions the Board of Directors of the company is
    accustomed to act:

    Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;

    A person cannot; however become a promoter merely because he signs the memorandum as a subscriber
    for one or more shares.

    9
    Functions of promoter

    • Promoters are liable to find a name for the company based on its mass appeal as
    well as legal apprehensions. The promoters must get the name registered with the
    registrar of companies.
    • The promoters decide upon the content of the MOA and Articles of Association
    (hereinafter referred to as ‘AOA’) of a company. It is their duty to ensure that the two
    documents are made in consonance with the law for the same.
    • The promoters propose the appointment of directors, bankers, auditors and other
    professionals for the company.
    • They are the ones who decide where the company shall be located, where its head
    office will exist and where it shall be registered.
    • The promoters are liable for the preparation of all documents regarding the
    incorporation of a company.
    10
    Other Functions of promoter

    • Discovering business opportunities


    Arranging funds
    • Preparations of documents
    • Implementation of idea
    • Other preliminaries activity

    11
    Duties of the promoter:

     Duty to disclose secret profits


     A promoter is not forbidden to make profit but to make secret profits. He
    may make a profit out of promotion with the consent of the company, in
    the same way as an agent may retain a profit obtained through his agency
    with his principle’s consent.
     A promoter is allowed to make a profit out of a promotion but with the
    consent of the company.

    Duty of disclosure of interest


     This is so even where a promoter sells property of his own to the
    company,
    12
    Liabilities on Promoter

    • A promoter is subjected to liabilities under the various provisions of the Companies Act
    • Section 26 of the Companies Act, 2013 lay down matters to be stated in a prospectus. A
    promoter may be held liable for non-compliance of the provisions of the section
    • Under section 34 and 35, a promoter may be held liable for any untrue statement in the
    prospectus to a person who subscribes for shares or debentures in the faith of such
    prospectus. However, the liability of the promoter in such a case shall be limited to the
    original allottee of shares and would not extend to the subsequent allotters.
    • According to section 300, a promoter may be liable to examination like any other director or
    officer of the company if the court so directs on a liquidator’s report alleging fraud in the
    promotion or formation of the company.
    • A company may proceed against a promoter on action for breach of duty under section 340,
    where the promoter has misapplied or retained any property of the company or is guilty of
    misfeasance or breach of trust in relation to the company.

    13
    CASE STUDY
    •  Prabir Kumar Misra v. Ramani Ramaswamy
    • The Madras High Court in Prabir Kumar Misra v. Ramani
    Ramaswamy [2010] 104 SCL 174, has held that-:
    “ to fix liability on a promoter, it is not necessary that he should be
    either a signatory to the Memorandum/Articles of Association or a
    shareholder or a director of the company. Promoter’s civil liability to
    the company and also to third parties remain in respect of his conduct
    and contract entered into by him during pre-incorporation stage as
    agent or trustee of the company.”

    14
    Conclusion

    • The Promoter originated the scheme for the formation of the company;
    gets together the subscribers to the memorandum; gets memorandum
    and prepared articles, executed and registered; finds the bankers,
    brokers and legal advisors; located the first directors, settle the terms of
    preliminary contracts with vender and agreement with underwriters
    and makes arrangements for preparation, advertisement and
    circulation of the prospectus and arrangement of the capital.
    • So, Promoters act as a molding format for the company and gives it a
    shape which can exist in the world although they cannot take anything
    in this regard.

    15
    REFERANCES-:
    COMPANY LAW,BY AVTAR SINGH
    A.K. Majumdar, Dr. G.K. Kapoor, ‘Taxman’s Company Law’, 16th ed., New Delhi:
    Taxman Publications Pvt. Ltd., 2013, Pg. 67
    Company Law Ready Reckoner by R Suryanarayayan
    Corporate law containing Company’s Act, 2013 by Ravi Pulian
    COMPANY ACT 2013 (BARE ACT)UNIVERSAL
    Epathshala (corporate law
    Meaning Of Company Promoters And  Their Functions, as quoted at:
    http://accountlearning.blogspot.in/2011/04/company-promoters-and-their-
    functions.html at: 3:39 PM, on 17th oct.2014.
    EBOOK- http://ebook.mca.gov.in/default.aspx
    16
    THANK YOU

    For queries
    Email: [email protected]

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