Promoters

• Who is referred to as a 'promoter' in the context of company formation?

  A promoter is the person who forms a company.
• What is the role of a promoter in relation to a company project?

  A promoter undertakes to form a company and set it going with reference to a given project.
• What case defined the role of a promoter in company formation?

  Twycross v Grant [1877]
• Is the determination of whether someone is acting as a promoter a question of fact or law?


  It is a question of fact rather than a question of law.
• Are professionals like solicitors or accountants considered promoters by merely acting in a professional capacity?

  No, they are not considered promoters unless they also agree to be directors of the company.
• What is the fiduciary relationship of a promoter towards the company?

  A promoter stands in a fiduciary relationship towards the company but is not a trustee.
• What is the primary remedy for a company if a promoter fails to disclose profits?

  The primary remedy is to rescind the contract and recover its money.
• What case illustrates the remedy for breach of a promoter's fiduciary duty?

  Erlanger v New Sombrero Phosphate Co [1878]
• To whom must a promoter disclose any profit or potential conflict of interest?

  A promoter must disclose to either an independent board of directors or existing/intended shareholders.
• What happens if the right of rescission is lost due to impossibility of restitutio in integrum?

  The company may ask the promoter to account for his profit.
• What is the legal status of a company before incorporation?

  A company has no legal existence before incorporation.
• What is a pre-incorporation contract?

  A pre-incorporation contract is a contract purported to be made by a company before it has been formed.
• Can a promoter avoid personal liability for a pre-incorporation contract?

  It depends on whether the company can ratify the agreement, which it cannot do if it does not exist.
• What case established that promoters are personally liable for pre-incorporation contracts?

  Kelner v Baxter [1866]
• What happens if a promoter signs a contract as the company's agent?

  The promoter would be held personally liable since the company does not exist.
• What is the effect of signing a contract using the company's name?


  The contract will be held to be with the non-existent company, resulting in no contract at all.
• What does Section 51(1) of the Companies Act 2006 state regarding contracts made by promoters?


  It states that a contract made by or on behalf of a company not yet formed is made with the person acting for the company, making them personally liable.
• What is novation in the context of pre-incorporation contracts?

  Novation is an agreement that personal liability of promoters ceases if the company enters a new contract on identical terms.
• What is one way to avoid issues with pre-incorporation contracts?

  Buying a company 'off the shelf' allows for ratification of contracts since the company exists at the time of the contract.
• What did the Court of Appeal decide in Phonogram Ltd v Lane [1982] regarding personal liability?

  The court held that there must be a clear and express exclusion of liability to avoid personal liability under the statutory provision.
• In Braymist Ltd v Wise Finance Company Ltd [2002], what was the issue regarding enforcement of a pre-incorporation contract?

  The issue was whether the solicitor could enforce the pre-incorporation contract under Section 51.
• What are the steps involved in the promotion process of a company?

  1. Registering the company with Companies House.
  2. Negotiating pre-incorporation contracts.
  3. Finding the initial shareholders and directors.
• What are the duties of promoters regarding disclosure?

  • Must disclose any profit or potential conflict of interest.
  • Disclosure should be made to either:
  • An independent board of directors, or
  • Existing or intended shareholders.
• What are the remedies available for breach of a promoter's fiduciary duty?

  • Rescind the contract and recover money.
  • Ask the promoter to account for secret profits.
  • Action against the promoter in tort of deceit.
• What is the legal status of a company before incorporation?

  • A company has no legal existence.
  • Cannot enter into contracts or be sued.
• What is the liability of promoters for pre-incorporation contracts?

  • Promoters can be personally liable if the company cannot ratify the contract.
  • Liability arises if the promoter signed as an agent of the company.
• What is the significance of Section 51(1) of the Companies Act 2006 regarding promoters?

  • It establishes that promoters are personally liable for contracts made on behalf of a company not yet formed.
  • Contracts are made with the person acting for the company.
• What are the implications of signing a contract using the company's name?

  • If signed using the company's name, the contract is considered non-existent.
  • Promoters cannot escape liability by signing as agents of a non-existent company.
• What is the concept of novation in relation to pre-incorporation contracts?

  • Novation allows personal liability of promoters to cease if the company enters a new contract on identical terms after incorporation.
• What is the definition of a promoter according to Twycross v Grant (1877)?

  • A promoter is one who undertakes to form a company with reference to a given project and takes necessary steps to accomplish that purpose.
• What is the definition of a promoter according to Whaley Bridge Calico Printing Co v Green and Smith (1879)?

  • A promoter is someone who undertakes business operations familiar to the commercial world to bring a company into existence.
• What is the definition of a promoter according to Twycross v Grant (1877)?

  A promoter is one who undertakes to form a company with reference to a given project.
• How did the judiciary define a promoter in Whaley Bridge Calico Printing Co v Green and Smith (1879)?

  A promoter is someone who undertakes business operations to bring a company into existence.
• What are the steps involved in the promotion process of a company?

  1. Registering the company with Companies House.
  2. Negotiating reincorporation contracts.
  3. Finding the initial shareholders and directors.
• What is the duty of promoters as established in Kelner v Baxter (1866)?

  Agency does not apply to promoters as the company does not exist.
• What fiduciary duties do promoters have according to Erlanger v New Sombrero Phosphate Co (1878)?

  Promoters must disclose any profit or potential conflict to an independent board or shareholders.
• What was the outcome of the case Foss v Harbottle (1834)?

  The proper plaintiff in a case regarding duties owed is the company, not its members.
• What remedies are available if a promoter does not disclose profits?

  • Rescind the contract and recover money.
  • Accounting of secret profits.
• What does Lagunas Nitrate Co v Lagunas Syndicate (1899) state about the right of recession?

  The right of recession is lost if restitution in integrum is not possible.
• In Gluckstein v Barney’s (1900), what can a company ask a promoter to do?

  A company may ask a promoter to account for their profit if rescission is not available.