Promoter of a company – role, duties and liabilities

Promoter of a company – role, duties and liabilities


  • Promoter is the individual who begins the thought for arrangement of an organization and gives the viable shape to that thought with the assistance of his own assets and with that of others.
  • The promoter, indeed, render a helpful assistance in the development of the organization. An promoter has been portrayed as “a maker of riches and a monetary prophet.”

Arrangement of Promoters

Promoter may additionally be partitioned into three classes

1. Professional promoter The expert promoter as the name connotes are the individual who structures or buoy the organization as their calling. At the point when the organization is joined, they either get the commission or a fixed sum for the development of an organization or make it go.

2. Occasional promoter Occasional promoter are that individual who embraces to frame an organization sometimes and take the shaping or coasting of an organization as their low maintenance work.

3. Promoters-The individual who makes all exploring, planning and courses of action for joining an organization are called promoter. The expert promoter and infrequent promoter by and large resign after the organization is coasted. The promoter, the third class, glide the organization for their own personal circumstance and take a functioning part for its effective activity.

Capacities or obligations of a Promoter of Company:

The primary obligations of promoter under custom-based law are as follow;

  1. To find and thought for building up an organization.
  2. To make definite examining about the interest for the item, accessibility of intensity work, crude material and so on
  3. To discover the appropriate individual who are happy to go about as first heads of the organization and are prepared to sign the update of affiliation.
  4. To select bank, legitimate counselor, examiners, guarantors for the organization
  5. To get ready basic records of the organization
  6. To set up a draft of the update of affiliation, articles of affiliation plan of the organization and get them printed.
  7. To present all the archives, needed for consolidation with the recorder.
  8. To organize commercial of the outline of the organization in the paper.
  9. To gathering all fundamental costs for skimming of an organization.
  10. To make contracts with merchants, financier and overseeing overseer of the organization.
  11. To raise the necessary funds and get the organization moving
  12. To make legitimate game plan for the workplace of the organization


(1) Right to Indemnity :

The promotors are severally and mutually obligated for any bogus assertion given in the possibilities hence when more than one individual go about as the promoter of the organization, one promoter can guarantee against another promoter for the remuneration and harms paid by him.

(2) Right to Receive the genuine Preliminary costs

He has to one side to recuperate the authentic costs which had spend during the cycle of the organization in expense of ad, charges for the specialist and so on The option to get the fundamental costs is certifiably not a legally binding right. It relies on the prudence of the heads of the organization

(3) Right to get the compensation

The option to get compensation is certainly not an authoritative right. It totally relies upon the organization to make a point to give the equivalent or not. n a few cases, articles of the organization accommodate the chiefs paying a predefined sum to promoter for their administrations yet this doesn’t give the promoter any legally binding option to sue the organization.


(1) Liability to account in benefits

The promoter is at risk to record to the organization for all mystery benefits made by him without total honesty to the organization. They will sue the promotor for the measure of benefit and recuperate the equivalent with premium

(2) Personal Liability

The promoter is actually at risk for all agreements made by him in the interest of the organization until the agreements have been released or the organization assumes control over the obligation of the promoter.

(3) Liability of the error in the plan

In Case of Mismanagement of the plan the promotor is obligated and needs to pay remuneration of each offer and debenture for any misfortune or harm continued because of some unacceptable data on the outline.

(4) Liability at the hour of wrapping up the organization

In Case of ending up of the organization, on an application made by the official outlet, the court may make an promoter subject for misfeasance or penetrate of trust. Further where misrepresentation has been affirmed by the outlet against an promoter, the court may arrange for his public assessment

Position of promoter in Companies Act, 2013

The articulation ‘promoter’ has not been characterized under the Companies Act, 1956, in spite of the fact that the term is utilized explicitly in areas 62, 69, 76, 478 and 519. Segment 62 of Companies Act, 1956 characterizes ‘promoter’ for the restricted reason for that segment as it were.

In Twycross v. Award promoter was portrayed as “one who attempts to shape an organization concerning a given venture, and to set it going, and who finds a way to achieve that reason.”


It is noticed that under the custom-based law, the promoter is the main individual who is at risk for the fuse of an organization. The undertakings embraced by the promoter starts with advancement, trailed by enlistment, floatation lastly beginning of business. The part of the promoter is strenuous and uncommon. The Companies Act appropriately puts the promoter under the ambit of investigation alongside different chiefs to guarantee legitimate straightforwardness concerning the compensation drawn by the directorate.

Promoter are fundamental to the endurance of the organization in an incipient stage. It is they who imagine the development of the organization and work out the ground subtleties for the joining of the organization. The promoter remains the sole individual answerable for the organization until he hands off the organization to the Board of Directors.

Author: Ugesh Rajan.J,
School of Excellence in Law, 2nd YearB.C.A.,LLB.,(hons.)

Leave a Comment