ACCA LW ^Eng Syllabus D. The Formation And Constitution Of Business Organisations - Explain The Role And Duties Of Company Promoters and Pre-Incorporation contracts - Notes ^{1 / 6}

They are the first agents of a company, and hence powerful at that stage

(They don't include people like accountants who are just acting in their professional capacity)

Duties of a Promoter

This is to curb their power

1. General duty to exercise reasonable skill and care

2. Duty to disclose and account to the company

3. Avoid a conflict of interest with the company

4. Not to make a secret profit

If the Promoter breaches these duties

The company can:

1) Rescind any contracts they made 
2) Recover any monies lost from the promoter

Erlanger v New Sombrero Phosphate Co

Now let's look at some of the things a Promoter has to deal with:

Pre-incorporation Expenses

In order to be re-imbursed for these - it has to be expressly agreed with the subsequent directors of the company.

Or there could be an article that indemnifies the promoter.

Pre-incorporation Contracts

These are contracts the promoter signed on behalf of the company, before the date on the certificate of incorporation 

The basic rule is that these are contracts for the promoter NOT the company. These contracts CANNOT be adopted/ratified by the subsequent company

To avoid this - the promoter could:

1. Try to NOVATE the contract (new contract)

2. Make the original contract - DRAFT ONLY until company is formed

3. Purchase a company 'off the shelf' - so it existed at the time of the contract

Consider the rules governing the Company's:

• Objects

• Names

• Registered Office