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Question

‘Promoter enjoys a fiduciary position with the company.' Explain. 


Solution

• Promoters of a company enjoy a fiduciary position with the company, which they must not misuse.

• They can make a profit only if it is disclosed but they must not make any secret profits.

• In the event of a non-disclosure, the company can rescind the contract and recover the purchase price paid to the promoters.

• It can also claim damages for the loss suffered due to the non-disclosure of material information.

• Promoters are not legally entitled to claim the expenses incurred in the promotion of the company. However, the company may choose to reimburse them for the pre-incorporation expenses.

• The company may also remunerate the promoters for their efforts by paying a lump sum amount or a commission on the purchase price of property purchased through them or on the shares sold.

• The company may also allot them shares or debentures or give them an option to purchase the securities at a future date. 

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