ExpertMedium1 markMultiple Choice
The formation and constitution of business organisationsThe formation and constitution of business organisationsPromoters
ACCA · Question 34 · The formation and constitution of business organisations
Section A
What is the legal status of a 'promoter' of a company?
Section A
What is the legal status of a 'promoter' of a company?
Answer options:
A.
They are an agent of the unformed company.
B.
They owe fiduciary duties to the company being formed.
C.
They are automatically the first directors of the company.
D.
They have no legal responsibilities once the company is incorporated.
How to approach this question
Understand the special relationship of trust between the person setting up the company and the company itself.
Full Answer
B.They owe fiduciary duties to the company being formed.✓ Correct
A promoter is someone who undertakes to form a company. Because the company does not yet exist, they cannot be its agent. However, the law imposes fiduciary duties on promoters, meaning they must act in good faith and not make secret profits at the expense of the new company (Erlanger v New Sombrero Phosphate Co).
Common mistakes
Assuming a promoter is an agent of the pre-incorporated company.
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