Promoter's Liability

For Non-Disclosure. In case a promoter fails to make full disclosure at the time the contract was made, the company may either: .
1. rescind the contract and recover the purchase price where he sold his own property to the company; or
2. recover the profit made with interest, even though recession is not claimed or is impossible, or .
3. claim damages for breach of his fiduciary duty. n. Under Coml.)anies Act. Other liabilities of a promoter as provided
in the Companies Act are listed below:
l. A promoter may be made liable to the original allotted of shares for the miss-statements contained in the prospectus (Section 62). He may also be
imprisoned for a term which may extend to two years or may be punished with the fine up to Rs. 50,0001 for such untrue statements in the prospectus
(Section 63).
2. In the course of the winding up of the company, on an application made by the official liquidator, the court may make a promoter liable for misfeasance
or breach outmost (Section 543). Further, where fraud has been alleged by the liquidator against a promoter, the court may order for his public

examination
(Sections 478 and 519).
Where there are more than one promoter they are jointly and severally liable and if one of them is sued and pays damages, he is entitled to claim
contribution from other co-promoters.
Remuneration of Promoters. It will be interesting to know that the promoters commit claim remunerations from the company as a matter of right. They can

get remunerations for their services in promoting the company only if there is a contract to that effect. In other words, he can recover remuneration for his
services if there is a valid contract between him and the company after incorporation. But, a company before incorporation, cannot enter into a contract.
As such, the promoter is at the mercy of the directors after incorporation of the company, even for his preliminary expenses. registration fee, etc. (Re
English & Colonial Produce Co.). However. the Articles of a company, generally contain a provision to this effect and authorize the directors to
remunerate the promoters. The usual ways of paying remuneration to a promoter for his services, are as under:
l. He may be given shares in the company, as fully or partly paid up, in consideration of his services.
2. He may be given a specified sum under the Articles.
3. He may be given commission on shares' sold in the company.
4. He may receive commission from vendors selling property to the company