Q. 1

What is meant by the term ‘Promotion’? Discuss the legal position of promoters with respect to a company promoted by them.

Answer :

Promotion of a Company is the first stage in the formation of a company. It involves conceiving a business idea and taking an initiative to form a company so that it can give shape to the available business opportunity.

The legal positions of promoters concerning a company are as follows-


• Promoters undertake various activities to get a company registered and get it to the position of commencement of business. But they are neither the agents nor the trustees of the company.


• They are not the agents as the company but they are personally liable for all the contracts which are entered by them, for the company before its incorporation


• Promoters of a company can make a profit by making deals secretly on behalf of a company.


Promoters are not legally entitled to claim the expenses incurred in the promotion of the company.


The company may allot some shares and give them an option to purchase the securities at a future date.


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