(a) There is no general statutory definition of a promoter in company law. In Whaley Bridge Calico Printing Co v Green (1880) Bowen L described the term promoter as ‘a term not of law but of business, usefully summing up in a single word a number of business operations familiar to the commercial world, by which a company is generally brought into existence’.
Whether a person is a promoter or not is a question of fact and the determining factor is whether the individual in question will exercise control over the affairs of the company both before and after it is formed up until the process of formation is completed. A person is not to be treated as a promoter of a company simply on the basis that they act in a professional capacity with respect to the establishment of a company. Thus solicitors and accountants employed purely in their professional capacity in order to establish a company will not be considered to be promoters.
As with directors, promoters are in a fiduciary relationship with the company they are establishing. This is a position akin to that of a trustee and the most important consequence that flows from it is that the promoter is not entitled to make a profit from establishing the company, without full disclosure of that profit to either an independent board of directors, or to the existing and prospective shareholders in the company. Such a situation usually arises in situations where the promoters sell assets to the company they are in the process of forming. Failure to make such a disclosure will enable the company to: rescind the contract; claim damages or hold the promoter liable to account for any profit made (Erlanger v New Sombrero Phosphate Co (1878), Gluckstein v Barnes (1900); Re Leeds & Hanley Theatres of Varieties (1902)). |
