Fiduciary Relationship of Promoters
Fiduciary Relationship of Promoters
Author: Tanushree Maddheshiya, B.A. LLB., LL.M. (C.C.L.), BBD University, Lucknow
Introduction
A promoter is a person or entity responsible for conceiving, organizing, and bringing into existence a company. A promoter is not necessarily the owner of the company but plays a key role in its formation by initiating the business idea and completing necessary legal formalities. The term ‘promoter’ is defined under Section 2(69) of the Companies Act, 2013. The relationship between promoters and the company is fiduciary in nature, meaning promoters are expected to act in good faith, with trust and loyalty towards the company, even before its incorporation. They must ensure that the company’s interests are protected during its formation stage.
Duties of Promoters
- Promoters must avoid making secret profits at the expense of the company.
- They must make full and fair disclosure of all material facts related to company formation and transactions.
- They must not place themselves in a position where personal interests conflict with the interests of the company.
Types of Promoters
- Professional Promoters: Individuals who promote companies as a profession and hand over management after incorporation.
- Financial Promoters: Those who invest capital and hold significant shares in the company.
- Managing Promoters: Those who help in formation and later participate in management of the company.
- Occasional Promoters: Those who promote companies occasionally for specific ventures or opportunities.
Conclusion
Promoters play a crucial role in the formation and establishment of a company. They act as the foundation builders of corporate structure and are expected to discharge their duties with honesty and transparency. Their fiduciary duty ensures that they act in the best interest of the company, helping in its proper incorporation and growth.
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