SELECTION OF THE NAME SELECTION OF THE NAME TO BE CONSIDERED WHILE SELECTING THE NAME OF A COMPANY TO BE CONSIDERED WHILE SELECTING THE NAME OF A COMPANY.

RECAP

• SELECTION OF THE NAME• TO BE CONSIDERED WHILE SELECTING THE

NAME OF A COMPANY• PRIOR APPROVAL OF SECP• RECTIFICATION OF NAME OF A COMPANY• CHANGE OF NAME BY A COMPANY• REGISTRATION OF CHANGE OF NAME• AFFIXING, MENTIONING ETC OF

COMPANY’S NAME

TODAYS TOPIC

“PROMOTERS”

DEFINITION Promoters may be an individual ,a firm, or a company and can be

defined as:

“The 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.”

Other definition: Promoters is one who is responsible for the

formation of the company.

He is the one who is responsible for the preliminary steps taken in the formation of the

company.

Promoter Before a Company is incorporated, or in the

process of incorporation, it is common for someone lay the groundwork of the Company. In practice, one does not always wait to receive the Certificate of Incorporation before commencing

business.Negotiations for the purchase of material or land would already have commenced. The people who take the responsibility of starting the Company are

referred to as Promoters.

Corporate PromoterA corporate promoter is a person who solicits people to invest money into a

corporation, usually when it is being formed. An investment banker, an underwriter, or

a stock promoter may, wholly or in part, perform the role of a promoter.

Promoters generally owe a duty of utmost good faith, so as not to mislead any potential investors, and disclose all material facts about the company's business

.

Types of PromotersPromoters may be classified into the following types. Professional PromoterThey are experts who specialize in company promotion. They float the company and hand it over to the shareholders or their representatives. Promotion is their main profession or occupation.

Occasional PromotersThese promoters take interest in floating some companies. They are not engaged in promotion work on a regular basis. They take up the promotion of some company and once it is over they go to their original profession. For instance, engineers, lawyers etc. may float some companies.

Types of PromotersEntrepreneur PromotersThey are both promoters and entrepreneurs. They conceive idea of a new business unit, do the groundwork to establish it and subsequently become a part of the management.

Financial PromotersSome financial institutions, like investment banks or industrial banks, may take up the promotion of a company with a view to finding opportunities for investment.

Function of promoters

To conceive the idea of forming a company. To select the name of the company. To settle the amount and form of its capital. To get the company registered.To get together a number of person who may sign the memorandum of association and to act as first directors.

.

To arrange for underwriting.

To select banks, auditors, brokers and legal advisors.

To pay preliminary expenses.

To prepare the memorandum and articles of association and prospectus.

To obtain certificate of commencement of business.

To make arrangement for the issuance of share capital.

To secure allotment of shares and debentures

To make arrangement for officers, factory, machinery and staff etc

To arrange for the compliance of contracts with vendors and underwriters.

To make filing, issue and advertising of prospectus.

Duties liabilities

and responsibility of

promoters:

Duty to disclose material facts:

It is the duty of promoters to disclose all the material facts regarding the formation of the company.

Liability for Secret profits:

If the company comes in to existence a promoter is liable for all his acts and for all the secret profits, if any, made during

the formation of company.

THE FIDUCIARY DUTIESThe promoter lays the foundations for a Company in terms of negotiations, registration of the Company, obtaining directors and shareholders and preparing all the paperwork.However, because the Promoter is such an important person in the formation of the company, the law places several responsibilities on him. These are known as fiduciary duties.

THE FIDUCIARY DUTIES

The following are some of the fiduciary duties that the Courts will insist that a Company promoter has to observe.

1.Top of the list is not to make a secret profit at the expense of the company

THE FIDUCIARY DUTIES

2. A duty to account to the company for the benefit for any property he might purchase with the intent of selling the property to Company for a profit later.

3.a duty not to defraud the Company by active concealment of any affairs relating to the company

4. a duty not to disclose confidential information to outsiders

5. a duty not to hide his personal interests through a nominee.

A Promoter is in a fiduciary relationship with the Company he promotes and as such he owes fiduciary duties towards it. This means that he is in a position of trust and must at all times act honestly and in good faith for the Company as a whole.

However, the most important aspect of his duty is not to make a secret profit at the expense of the Company.

THE FIDUCIARY DUTIES

"Promoters have a legal duty not to make a secret profit out of the promotion of the Company without the Company's consent and also to disclose to the Company any interests the promoters have in any transaction proposed to be entered into bythe Company“

There are many cases where Promoters did not remain true to their fiduciary duties. The bottomline requirement from Promoters is that they must be transparent in their dealings with the Company.

There are three remedies in situations where the Promoters have breached the Fiduciary Duties.

1. Rescission 2. Recovery of the Secret Profit. 3. Damages for breach of FD or deceit

THE FIDUCIARY DUTIES

RESCISSIONIf the Company has entered into a Contract with the promoter and it is later discovered there had been no transparency, the Company is entitled to rescind the contract.

It is irrelevant that the promoter has made no profit from the contract.

THE FIDUCIARY DUTIES

DAMAGES FOR BREACH OF FIDUCIARY DUTIES.

In the case of RE LEEDS & HANLEY THEATRES OF VARIETIES LTD.(1902)

The Court ordered the Promoter to pay damages to the Company. The Court held that the Promoters had fraudulently omitted to disclose the profit made by them on the sale of the property to the Company. The amount of damages was equivalent to the amount of profit made by the promoters.

Modes of payment:A promoter is entitle to a reasonable remuneration…The following could be the modes of payment:

1. The vendors may agree to pay him a commission on sale of their property to the company.

2. The promoter may purchase a property and sell it to the company at a profit

3. The promoter may be given deferred of founder’s shares as fully paid up.

4. A lump sum amount may also be paid as remuneration.

Registered Office A Registered office is the official address of an

incorporated company, association or any other legal entity

Generally it will form part of the public record and is required in most countries where the registered organization is incorporated

A Registered physical office address is required for incorporated organization to receive office correspondence and formal notices

Registered OfficeSection 142

Under companies ordinance 1984 following are the provisions a) A company shall have a registered office to which

all communications and notices may be addressed With in 28 day from the date of Incorporation or date of

commencement of business

b) A Company shall file, with the registrar, a notice of change of its registered office with in 28 days from the date of change

Registered OfficeSection 142

c) Publication of registered office address in any document or annual return etc, does not dispose with company’s liability under (b) above

d) The situation of the registered office shall also be stated in the Annual Return of the Company.

CRO Company Registration Office

One of the important functions of the SECP is the incorporation/registration of companies. This task has

been entrusted to the Registration Department, Company Law Division which has its field offices

known as Company Registration Offices (CROs) for the purpose of incorporation / registration of different

type of companies.

CRO Company Registration OfficeSince the inception of SECP, a number of operational changes have been introduced and a friendly environment has been created at the CROs.

Incorporation of companies has been made much easier, smooth and swift ensuring completion of this process within three days.

Other public services like availability of name, providing of certified copies etc., are rendered within one day.

eServices has been launched by the SECP in Sep. 2008, which facilitates online availability of name, online incorporation of companies and e-filing of statutory returns. It enables the promoters and management of the company to

interact online using the eServices portal, without visiting the SECP offices. Online services save time and resources, increase efficiency, create a paperless environment, promote confidence and strengthen the country’s economy.

CRO Company Registration OfficesFor the convenience of general public, promoters and directors of companies, SECP has established its eight CROs at1. Islamabad, 2. Karachi, 3. Lahore, 4. Peshawar, 5. Faisalabad, 6. Multan, 7. Sukkur and 8. Quetta.

Online facilities for incorporation of companies and filing of returns have been made available.

Functions of CROFunctions of CRO’s include1. Registration of companies and monitoring of their working

according to law2. Providing services and guidance and also 3. To ensure that the companies and their directors comply

with the statutory requirements as provided under the Companies Ordinance, 1984 (the Ordinance).

4. The record of companies maintained by the CROs is public record and the investors, shareholders, creditors and general public, may inspect the record of any company whenever they need and they may also obtain certified copy of any specific document on payment of nominal amount of fee.

Topics CoveredSo Far we have covered first part of Corporate law and that is the ELEMENTS OF COMPANIES LAW1. COURTS, SECP AND REGISTRAR2. TYPES OF COMPANIES3. INCORPORATIONS OF COMPANIES4. STATUS OF CONVERSION OF COMPANIES5. COMMENCEMENT OF BUSINESS 6. MOA AND AOA7. THE NAME OF A COMPANY8. REGISTERED OFFICE9. PROMOTERS10. CRO

UPCOMMING LECTURESThe part SHARE CAPITAL will be taught in the upcoming lectures, we shall cover 1. PROSPECTUS2. TYPES OF SHARES AND SHARE CAPITAL3. ALLOTMENT OF SHARES4. ISSUE OF SHARES AND SHARE CERTIFICATE5. ALTERATION OF CAPITAL6. REDUCTION OF CAPITAL AND PURCHASE OF SHARES7. TRANSFER AND TRANSMISSION OF SHARES