The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 85. Persons promoting a company
Any person who undertakes to take part in forming a company with reference to a given project and set it going and who takes the necessary steps to accomplish that purpose, or who, with regard to a proposed or newly formed company, undertakes a part in raising capital for it, is deemed a promoter of the company : Provided that a person acting in a professional capacity for persons engaged in procuring the formation of the company shall not be deemed to be a promoter.
Section 86. Duties and liabilities of a promoter
(1) A promoter stands in a fiduciary relationship to the company and shall observe utmost good faith towards the company in any transaction with it or on its behalf and shall compensate the company for any loss suffered by reason of his failure to do so.
(2) A promoter, who acquires any property or information in circumstances in which it was his duty as a fiduciary to acquire it on behalf of the company, shall account to the company for such property and for any profit which he may have made from the use of such property or information.
(3) Any transaction between a promoter and the company may be rescinded by the company unless, after full disclosure of all material facts known to the promoter, such transaction shall have been entered into or ratified on behalf of the company by —
(a) the company’s board of directors independent of the promoter ;
(b) all the members of the company ; or
(c) the company at a general meeting at which neither the promoter nor the holders of any share in which he is beneficially interested shall vote on the resolution to enter into or ratify that transaction.
(4) No period of limitation shall apply to any proceeding brought by the company to enforce any of its rights under this section but in any such proceeding the Court may relieve a promoter in whole or in part and on such terms as it deems fit from liability if in all the circumstances, including lapse of time, the Court deems it equitable to do so.
What this means
Short answer
A promoter is a person who undertakes to take part in forming a company for a given project and takes the steps needed to set it going, or who helps raise capital for a proposed or new company (section 85). A promoter owes the company fiduciary duties and must account for any profit made in breach (section 86).
Who is a promoter
Section 85 treats as a promoter any person who undertakes to take part in forming a company for a given project and sets it going, taking the necessary steps. It also covers someone who, for a proposed or newly formed company, undertakes a part in raising capital. A person acting only in a professional capacity for those forming the company is not a promoter.
What a promoter owes the company
- A fiduciary relationship, utmost good faith in any dealing with the company or on its behalf, and compensation for any loss caused by failing to observe it (section 86(1)).
- An account for any property or information he acquired in circumstances where he had a duty to acquire it for the company, and for any profit made from using it (section 86(2)).
Deals between a promoter and the company
The company can rescind any transaction between itself and a promoter, unless, after full disclosure of all material facts the promoter knows, it was entered into or ratified by one of these (section 86(3)):
- a board of directors independent of the promoter;
- all the members of the company; or
- the company in general meeting, with neither the promoter nor holders of any share in which he is beneficially interested voting.
No time limit, but a court can relieve
No limitation period applies to proceedings by the company to enforce these rights. The court can relieve a promoter, wholly or partly and on terms, if it is equitable after considering all the circumstances, including the passage of time (section 86(4)).
Contracts made before the company exists
A promoter’s pre-incorporation contracts are covered separately. See company contracts, seals and signing documents.
Questions and answers
Who is a promoter of a company?
A person who undertakes to take part in forming a company for a given project and sets it going, or who helps raise capital for a proposed or new company. Professional advisers acting in that capacity are excluded (section 85).
What duties does a promoter owe?
A fiduciary duty and utmost good faith, a duty to compensate the company for loss from breach, and a duty to account for any property, information or profit acquired in breach (section 86(1) and (2)).
Can a company cancel a deal with its promoter?
Yes, unless after full disclosure it was entered into or ratified by an independent board, all the members, or a general meeting where the promoter and his interested shareholders did not vote (section 86(3)).
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