Fiduciary and Promoter
Co. may sue for damages and breach of fiduciary duty as well as recovery of secret profits made. Law does not forbid the profit or personal interest but only stipulates that full disclosure is made of the same. Disclosure to be made to an Independent board of directors or intended shareholders as a whole. Measure of damages is the actual loss suffered by the company as a result of the transaction 4. Not to make unfair use of the position to avoid anything as this has the appearance of undue influence or fraud. Also, promoter cannot relieve himself of his liability by making provisions for the same in the AoA DUTY AND REMUNERATION OF PROMOTER Promoter must ensure that the prospectus or statement in lieu oF prospectus contains necessary particulars and does not contain any untrue or misleading statements or does not omit any material facts * A promoter has no right to get compensation from company for his services in promoting the company unless there is a contract to that effect * If there is no contract, promoter is not entitled to remuneration in respect of any payment made by him in connection with the co. formation * Promoter takes remuneration as follows: 1. May sell his own property at a profit to co. for cash or fully paid up shares, provided he discloses the same 2. May be given an option to buy certain no. of shares at par 3.
May take commission for shares sold or may be paid lump sum by co. PRE INCORPORATION OR PRELIMINARY CONTRACTS * Promoters usually enter into contracts with 3rd parties for property or supplies prior to the incorporation of the co. * Such contracts called as pre-incorporation or preliminary contracts * Promoters enter into such contracts on behalf of the company about to be formed * Legal position – “ 2 consenting parties are necessary to a contract where as the company, before incorporation is a non –entity” * As such the company is not liable for the acts of its promoters prior to incorporation POSITION OF PROMOTERS IN P/I CONTRACTS . Company not bound by pre-incorporation contracts, even if it takes the benefit of the contract entered into on its behalf Case: English & Colonial Produce Co. Ltd, Re A solicitor prepared the MoA & AoA of the co. and paid the necessary registration charges for the registration.
Fiduciary and Promoter Essay Example
He was acting on the directions of certain persons who were to become directors of the newly formed company. Held, the company was not liable to pay the costs of the solicitor, although it had taken benefit of his work 2. Company cannot enforce pre-incorporation contracts Case: Natal Land & Colonization Co. Ltd V. Pauline Colliery & Development Syndicate Ltd. N co. greed with an agent of P co. to grant a mining lease to the syndicate, prior to formation of P. Syndicate registered and discovered a seam of coal. Co. refused to grant the lease. Held, there is no binding contract between company & syndicate 3. Promoters personally liable as the contract is deemed to be entered into by promoters personally Case: Kelner V. Baxter A hotel company was about to be formed & persons responsible for the new co. signed an agreement on 27th Jan, 1866 for the purchase of stock on behalf of the incorporated company & payment was to be made on 28th Jan, 1866. Co. was incorporated on 20th Feb, 1866. Goods were consumed in the business and co. ent into liquidation before the debt was paid. Held, persons signing the agreement were promoters & personally liable for their signatures RATIFICATION OF P/I CONTRACT *
A Co. cannot ratify a contract entered into by the promoters on its behalf prior to incorporation * Doctrine of ratification applies only when if an agent contracts for a principal in existence & competent to contract at the time of contract * If a contract is made on behalf of the co. known to both the parties to be non-existent, the contract is deemed to have been personally entered into by the promoters * Co. can enter into a fresh contract after its incorporation with the other party * If co. akes fresh contract, liability of promoters comes to an end * If co. does not make a fresh contract within a limited time, either of the parties may rescind the contract * Sec. 15 & 16 of Specific Relief Act – When promoters have entered into p/I contracts for the co. ’s purpose & such contract is warranted by the terms of incorporation, specific performance may be obtained or enforced against the company, provided that the company accepts the contract and has communicated such acceptance to the other party PROVISIONAL CONTRACTS * Contracts entered into by public Co. s after incorporation but before the issue of the certificate to commence business * Sec. 49 (4) – Any contract made by the company before the date at which it is entitled to commence business shall be provisional only and shall not be binding on the co. until that date and on that date, it shall become binding * If the company is unable to obtain the certificate to commence business, provisional contract lapses automatically * If it gets the certificate, provisional contract is binding on the company automatically. There is no need for ratification * Co. not bound to recognize all contracts between date of incorporation and date of commencement of business * If contract is oppressive, fraudulent or voidable, co. may avoid the same