There are many actions that have to be undertaken prior to a corporation coming to life. One of the most important aspects of incorporation is the role of promoters. Promoters are individuals who take the initiative in founding and organizing the business or enterprise. They are needed to raise capital, enter contracts, and ensure an overall smooth and efficient founding of a corporation.
The promoter, however, has duties beyond simply raising capital that they must live up to during regular business operations. When these duties aren’t fulfilled, there’s a possibility that legal action might come into the picture. If this is the case, then you’ll want to review the duties of a promoter as per these guidelines from the Trembly Law Firm.
Baseline Duties That Need to be Fulfilled by A Promoter
Promoters owe fiduciary duties to others within the future corporation. Owing fiduciary duties means that promoters have legal duties to act solely in another party’s interests. Promoters also owe a duty of good faith to the other participants in the business venture. This includes a high standard of honesty and frankness and ensures that the corporation’s interests are served before the promoter’s own interests.
Another major subset of fiduciary duties that promoters owe the corporation is a dedication to corporate funds for business purposes. In essence, the promoter cannot keep corporate funds for himself aside from appropriate pay for his time. The promoter must not allow any corporate funds under his control to go to waste, and ensure that the corporation’s interests are best served at each step of the way.
Keep in mind that there’s a stark difference between what’s considered corporate funds and those that are considered personal property. A promoter isn’t given free will to spend money that doesn’t belong to them. If the funds are part of the company’s collective property, then they must be used in a way that benefits said organization. Anything else could potentially be considered a breach of the promoter’s individual duties.
On top of this, promoters are asked to take on a number of extra duties when it comes time to manage the actual process of going into business.
Who Is A Promoter In Corporate Law
In business law, a promoter is either a contracted organizer or a shareholder within the organization. They usually solicit money for investors to inject into a business so that it can expand. In the case of a shareholder, they are working to not just get an increase in their investment but that of everyone else’s.
Promoters can either be entrepreneurs, financial institutions, or temporary contractors. In the case of institutions, their interest is to increase the potential for a return on investments. This expands its portfolio and makes it look attractive to other customers. Temporary contractors only have a written obligation for a limited time period and will return to other duties when that time is up. Entrepreneurs put in the work into building a company and raising capital, and thus are more likely to become shareholders.
A promoter must always disclose the profits they earn from such management and business sales. They are legally obligated to reveal important details to the investors, including the board of directors, that may affect the incorporation process.
In addition, a promoter will have no potential conflicts of interest or edit the deal so that it benefits them exclusively. If they are a shareholder, they will comply with the Securities and Exchange Commission (SEC) guidelines. These include disclosing any financial investments in the business.
Functions of a Promoter During The Incorporation Process
Promoters play a big role in the incorporation process, and as such are governed by their own rules. These duties fall under the basic rules that govern all acts of incorporation, which means that these must be followed in addition to those that are laid out for individuals who act as promoters on behalf of another organization.
However, because promoters are given wide latitude and discretion in executing their duties to the corporation, they also have certain duties they must live up to. They cannot take advantage of their special position as a promoter to the detriment of the corporation. If you feel as though your company has been taken advantage of by promoters due to their special position, consulting the right legal team can help recoup what is rightfully owed to you.
Unfortunately, the fact that promoters are given so much discretion when it comes time for them to make major decisions has translated into the ability for these individuals to end up taking advantage of those who put their faith in them. This is particularly concerning considering the fact that they’re often asked to perform these kinds of important services at the most crucial points in a business’s history.
When a firm is first getting started, it’s often at its most vulnerable. That can be a severe problem for those who don’t have as much seed capital as it might otherwise take to operate such a major venture.
As a result, you can expect that firms that run into these kinds of problems may end up with difficulties that go far beyond a simple business lawsuit. That means you’re going to want to work with a legal team that you can trust to get you the results you need at a time when things might be looking bleak.
Don’t lose hope in a better future. Simply get in touch with our law firm and see what a huge difference an experienced legal team can make in your case.
Finding the Kind of Assistance You Need At Trembly Law
At Trembly Law, our approach to our clients is grounded in open communication and trust. We believe in direct contact that lays the groundwork for a long-term client-attorney relationship that can help us to anticipate your needs and work toward your company’s best interests and objectives.
If you feel that you might have been slighted by someone who was entrusted to act as your promoter, then contact us using our convenient online form. An experienced member of our team will get in touch with you and review your case so you can be sure that you’ll get the kind of attention you deserve.
Arturo Arca, Esq.
Partner & Chair of Litigation Department
Arturo Arca joined Trembly Law Firm as a partner in 2018, bringing over a decade of experience in commercial and civil litigation. He represents corporate clients in consumer finance, employment, and business matters, including mergers and acquisitions and non-compete agreements. Arturo helps business owners proactively solidify their foundations and address potential issues with strategic guidance, minimizing liability and fostering growth. His passion for helping businesses thrive energizes him, ensuring his clients have the peace of mind to expand confidently. Arturo’s experience and reputation have led him to share his knowledge through presentations, seminars, and publications, including contributions to Law 360.
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