What are the liabilities of promotors? Can promoters receive any

What are the liabilities of promotors? Can promoters receive any remuneration?

Ans.

LIABILITIES OF PROMOTERS

Following are the liabilities of the promoters :

(1) Liability in Relation to the Promotional Functions: Promoters are fully responsible for all the promotional work.

(2) Liability to Disclose and Pay the Secret Profits – It is the primary liability of a promoter to disclose the secret profits received during promotional work. He must disclose and repay to the company.

(3) Liability for the Purchase of Assets without giving Statement – If any asset is purchased without making complete disclosure of the facts and the company suffer losses, this loss is to be beared by the promoters. The company is empowered to recover the amount from the promoters.

(4) Liability till the Completion of Contract – Promoters be personally liable for the contracts made by them on behalf-of the company, till the contracts goes to an end.

(5) Liable for Misstatement in the Prospectus – The promoters involved in issuance and publication of prospectus, and have given any misstatement in it, and afterward the company suffers and loss due to such misstatement. The promoter be personally liable to compensate the company.

(6) Liable for Legal Mistakes in Prospectus – If shareholders have to suffer losses because of some lawful mistake in prospectus issued by the promoters. The promoters are liable to make good of them.

(7) Liable for Frauds in the Prospectus- The promoters who participated in issuance of prospectus, are responsible to the shareholders for frauds committed in prospectus. The court may restrain a promoter from taking part in the management for a period of five years if he has been quality of any offence punishable under Section 339.

(8) Recovery from his Assets after Death – The company can recover the amount from his personal assets in case of death of the promoter.

(9) Responsibility on Becoming Insolvent- If any promoter has become insolvent, the company is empowered to claim from his assets.

(10) Liability for the Breach of Duty- If the company suffers losses for the breach of duty by the promoters. Company can claim for compensation from the promoters.

(11) Liability on Liquidation- In the course of winding up of the company, on an application made by the official liquidator, the Court may a promoter liable for breach of trust. In case of any fraud, the Court may order for his public examination.

(12) Liable for Misuse of Assets on Liquidation- If the promoters misuses the assets during the course of winding up. The Court, on an application by the creditors or official liquidator, may order the promoters to return back the assets.

REMUNERATION OF PROMOTER

A promoter, in consideration of his services in the formation of the company, may be paid in cash or partly in cash and partly in shares and debentures of the company after its incorporation. A promoter can’t file a suit in a Court of Law for the recovery of his remuneration. The promoters may be paid in following ways:

(1) Lumpsum- An agreed amount is paid to promoters in cash.

(2) Commission – He may be paid commission as remuneration for the purchase of assets and the services rendered to the company.

(3) Profits- The promoters may purchase the assets of business in his own name and can sell it to the company at some profits and by this way he can earn benefits.

(4) Shares and Debentures – Fully paid shares or debentures may be given free of cost to the promoters.

(5) Cash and Shares – They may be paid some amount of cash and some in shares.

(6) Appointment at any Post – He may be appointed at any post by the company.