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The process of conceiving or developing an idea of business and taking the initial step towards converting it into a company so that the idea can be converted into a business project is called as promotion and the people who take those initial steps are known as promoters of the company.
A promoter, apart from developing the business idea also needs to analyse the prospects in future and take necessary steps to fulfil the purpose. The promoter needs to arrange labour, machinery and capital. So here are some of the legal liabilities that a promoter has towards the company:
1. A promoter is neither an agent nor a trustee of the company as prior to getting incorporated a company does not exist as a legal entity.
2. Promoters cannot make secret profits by making deals acting on behalf of the organisation or company.
3. The promoters can be held legally liable for any untrue statement that will be filed in the company prospectus.
4. Expenses incurred by promoters during the promotion of the company cannot be claimed.
5. The promoters are not may or may not be considered for payments before a company gets incorporated. Based on company’s discretion they may be allotted shares to compensate for their exemplary services.