Company Law Promoters Who is a Promoter? . The term 'promoter' has not been precisely defined by either the courts or by the . . Companies Act (both 1985 and 2016) Companie Act 1965 & 2016 "promoter", in relation to a prospectus issued by or in connection with a corporation, means a promoter of the corporation who was a party to the preparation of the prospectus or of any relevant portion thereof; but does not include any person by reason only of his acting in a professional capacity Twycross v Grant (1877) 2 CPD 469 Cockburn CJ: "A promoter, I apprehend, is one who undertakes to form a company, with reference to a given project and to set it going, and who takes necessary steps to accomplish that purpose." Tengku Abdullah ibni Sultan Abdul Bakar v Mohd Latiff bin Shah Mohd [1996] 2 MLJ 265 Gopal Sri Ram J: A promoter is one who starts off a venture - any venture - not solely for himself. A promoter of a company may be a natural person (as per Salomon v Salomon & Co Ltd [1897] AC 22) or an artificial person, especially when a holding sets up a wholly owned subsidiary. Tracy v Mandalay (1953) 88 CLR 215 Promoters do not have to take active steps or participation. . Duties of a Promoter . A person becomes a promoter before the company is incorporated, for he is totake steps to incorporate it and establish its business. Re Cape Breton Co (1885) Court held that duty of promoter may arise even at the time he purchases a property with the intention of selling it to the company he is going to incorporate. Erlanger v New Sombrero Phosphate Co (1878) A person may continue to be a promoter even after the company has been incorporated, for the purpose of procuring capital for the company. Fiduciary Duty 1. Duty to make full disclosure. 2. Duty to not make secret profit. Erlanger v New Sombrero Phosphate Co (1878) Facts: Erlanger was a Parisian banker. He bought the lease of the Anguilla island of Sombrero for phosphate mining for 55,000. He then set up the New Sombrero Phosphate Co. Eight days after incorporation, he sold the island to the company for 110,000 through a nominee. One of the directors was the Lord Mayor of London, who himself was independent of the syndicate that formed the company. Two other directors were abroad, and the others were mere puppet directors of Erlanger. The board, which was effectively Erlanger, ratified the sale of the lease. Erlanger, through promotion and advertising, got many members of the public to invest in the company. After eight months, the public investors found out the fact that Erlanger (and his syndicate) had bought the island at half the price the company (now with their money) had paid for it. The New Sombrero Phosphate Co sued for rescission based on non-disclosure, if they gave back the mine and an account of profits, or for the difference. It was held that the promoters had breached their fiduciary duty as they did not make full and frank disclosure on their interest in the contract to an independent board of directors. Therefore, the contract was voidable at the company's option. Gluckstein v Barnes (1900) Facts: Promoters of a company had acquired a property intending its resale through the sale of shares in the company. In doing so the original directors made a substantial profit which they did not disclose (though it was discoverable). The company became insolvent and investors sought repayment of the hidden profit. Held: The Court held that the promoters were under a duty to make explicit declarations of the profits already made and that partial disclosure was not sufficient. The rationale for these duties can be seen in the case of Habib Abdul Rahman v Abdul Cader (1808-1890) 4 Ky 193 This liability can be avoided and business transaction between promoter and his own company can be taken place as long as first, the promoter discloses the transaction in Memorandum of Association and Articles of Incorporation and second, the board of directors approve the transaction. Fairview Schools Bhd v Indrani a/p Rajaratnam (no 2) [1988] 1 MLJ 110 Court held that promoters has a legal duty to not make any secret profit out of the promotion of the company without the company's consent. It was also held that the obligation to not make secret profit is only one of the instance of the broad duty of a promoter to avoid conflict of interest and that there is also an obligation to not disclose confidential information. Alternatively, can disclose information in a members meeting/disclosure in the company. But... Even if the company has adopted a constitution and the promoter has disclosed in the company's constitution of his interests in the contract, S.39 of the CA 2016 has now ousted the application of the doctrine of constructive notice with regards to documents lodged with the Registrar of Companies. Thus, one shall not be deemed to have notice or knowledge of the contents of the document. Nevertheless, S.33(1) of the CA 2016 stipulates that the constitution binds the . company and members "to the same extent as if the constitution had been signed and sealed by each member". It is thus the responsibility of any incoming member to enquire about the company's constitution and contents therein.