A Promoter is a person who undertakes to form a company with reference to a given project and to set it going and takes the necessary steps to accomplish that purpose. See Twycross .V. Grant.
•It was held in Taibatu Adeniji & Ors V. Starcola (Nig) Ltd. & Anor, as anybody who undertakes to take part in forming a company or who with regards to a proposed or newly formed company undertakes a part in raising capital for it, is prima-facie a promoter of the company for he has taken part in setting a company formed going
with reference to a given object.
•S. 85 of CAMA defines it as any person who undertakes to take part in forming a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose or with regards to a proposed or newly formed company undertakes a part in raising capital for it shall prima – facie be deemed a promoter of the company.
The word promoter covers a wide range of persons no matter how less active or dominating roles they play.
•It includes those who provided the initial capital for the company.
•A person can become a promoter either before or after incorporation of the Company. It must also be noted that a subscriber is not ipso facto, a promoter neither does an agent or servant of a promoter a promoter.
•A promoter need not be a natural person.
•A person employed in ministerial, professional or technical capacity like Solicitors, Accountants, Valuers or Business Consultants are not promoters.
The Legal Position of Promoters
• Though a promoter occupies a unique position and is like a parent to the company, he is neither an agent nor trustee of the company.
•He is not an agent because there is no principal.
•He is not a trustee because there is no property, trust as well as a beneficiary.
•A promoter stands in a fiduciary position towards the company with duties of disclosure and accounting.
Duties of a Promoter
The promoter of a company has the following duties:
- Duty not to make secret profit which implies that a promoter should not make profit from the promotion without disclosing it to the company.
- Duty of disclosure which implies that a promoter can make profit from reselling property to the company, or receiving commission from a vendor, or reselling a moribund company to the company he promoted - provided he discloses it to a board of directors independent of him, existing or potential members or the company at general meeting. See S. 86(3) of CAMA.
- Duty to disclose interest especially of pecuniary character must be made to the board, members or company in general meeting.
Remedies for Breach OF FUDICIARY Duties
•Rescission of contract; or
•Recovery of any secret profit by an action;
•Claim for damages.
•REMUNERATION AND EXPENSES OF PROMOTERS:-
•Generally a promoter cannot ask for payment of his services or expenses incurred during promotion of the company. But in practice, a promoter can recover his preliminary expenses and be remunerated through the following means:
•By reselling property to the company at an enhanced price; or
•Receiving commission provided he discloses it to board of directors independent of him, existing or potential members or the company at general meeting;
•Taking up Deferred or Founders Shares; or given options to subscribe for shares at a particular price within a specified limit.
PRE-INCORPORATION Contracts
•Pre-incorporation contracts are contracts purported to be made by promoters on behalf of a company before its incorporation.
•Under common law, such contracts are invalid and unenforceable by or against the company.
PRE-INCORPORATION CONTRACTS
•Under CAMA, pre-incorporation contracts can be ratified but before the ratification, the promoter is personally liable. See S. 96 of CAMA.
•A promoter will not be personally liable if he negatives personal liability by express agreement.
PRE-INCORPORATION CONTRACTS
INDICATIONS FOR PRE-INCORPORATION:-
•Payment of promoters expenses;
•Shareholders Agreement;
•Take- over of business;
•Joint- venture Agreement;
PRE-INCORPORATION CONTRACTS
•Conversion of Partnership to registered company;
•Promoters/Directors’ Service Agreement;
•Transfer of Technology Agreement;
•Confidentiality Agreement;
•Managerial/Consultancy Agreement
PRE-INCORPORATION CONTRACTS
•Patents/Trademark Agreement
RELATIONSHIP BETWEEN MEMO & ARTICLES OF ASSOCIATION AND PRE-INCORPORATION AGREEMENTS:-
Where there is a conflict between
PRE-INCORPORATION CONTRACTS
memorandum and articles and pre-incorporation contract, the memorandum prevails.
•See Edokpolar and Co. Ltd V. Sem-Edo Wire Industries (1984) 15 NSCC 553 or (1984) 7 S C 119.
PRE-INCORPORATION CONTRACTS
•Incorporation of pre-incorporation agreement into the memo does not make it binding but a strong indication that the company will ratify it.
FEATURES OF JOINT-VENTURE AGREEMENT
•Parties;
•Commencement date;
•Management structure;
•Capital contribution;
•Profit and loss sharing;
•Supremacy clause;
FEATURES OF JOINT-VENTURE AGREEMENT
•Confidentiality clause;
•Duration;
•Determination;
•Accounts;
•Governing Law;
•Arbitration Clause; etc
MEMORANDUM OF UNDERSTANDING
It is an Agreement between persons, bodies, communities and or organisation, etc in a written form.
CONTENTS:-
Authority;
Signatories;
MEMORANDUM OF UNDERSTANDING
•Management;
•Employment requirements;
•Employment conditions;
•Wages/Salaries;
•Capital contribution;
•Effective Date;
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MEMORANDUM OF UNDERSTANDING
•Subcontracts;
•Community development;
•Termination;
•Dispute resolution;
•Governing law;
•Arbitration clause; etc
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