Promotion is the stage of conceiving an idea of forming a company to do a business and working on that idea. The person involved in this task is termed as promoter.
The promoter may work up the idea with the help of his own resources, influence or competence or he may, if necessary, take the help of technical and legal experts to bring a company into existence.
The Promoter:
The term ‘promoter’ is that of business and not of law (not being defined anywhere in the Act). Promoter is a person who conceives the idea of starting a business plans the formation of a company and actually brings it into existence.
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He may be said to be “the father of the company who sees the prospects of gain in a business which he wishes to set up, and believes that he can persuade others too to think as he does.” A promoter is ‘one who undertakes to form a company with reference to a given object and to set it going and who takes the necessary steps to accomplish that purpose.
Palmer has defined company promoter as “a person who originates a scheme for the formation of the company, has the Memorandum and the Articles prepared, executed and registered, and finds the first directors, settles the terms of preliminary contracts and prospects (if any) and makes arrangements for advertising and circulating the prospectus and placing the capital.” Thus, a promoter discovers, formulates and assembles a business proposition and brings about a company into existence for its development.
A promoter may be an individual, a family, a firm, an association of persons, a company or even the government. It may cover any individual or company that obtains a director, places shares or negotiates preliminary contracts.
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A promoter need not necessarily be associated with the initial formation of the company; one who subsequently helps to arrange the ‘floating off of its capital’ will equally be regarded as a promoter.
Persons doing acts of purely ministerial nature or in a professional capacity for remuneration or fees are not promoters e.g., solicitors, values, etc. As per section 62(6) (a) of the Companies Act, promoter does not include any person by reason of his acting in a professional capacity or persons engaged in procuring the formation of the company. A person who only advances money to promoters for meeting out preliminary expenses is not a promoter. But a professional who brings financiers to the company are considered as promoters.
A person cannot be held as a promoter merely because he has signed at the foot of the Memorandum or that he has provided money for the payment of formation expenses. A signatory to the Memorandum, who has not performed the functions of the promoter of a company, may not be liable as a promoter.