Question

As a promoter is in a fiduciary relationship with the unformed company, he is never permitted to make a profit out of the company's promotion.

• A. True
• B. False
• C. It depends on his own wish
• D. None of the above

Answer 1

Answer: (A)

True

Promoters have been described to be in a fiduciary relationship i.e. relationship of trust and confidence with the company. This relationship of trust and confidence requires the promoter to make a full disclosure of all material facts relating to the formation of the company. So, he must not make any secret profit out of the promotion of the company. Secret profit is made by entering into a transaction on his own behalf and then sell to concerned property to the company at a profit without making disclosure of the profit to the company or its members.

The promoter can make profits in his dealings with the company provided he discloses these profits to the company and its members. What is not permitted is making secret profits i.e. making profits without disclosing them to the company and its members.