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Role of a Promoter in Company Formation

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Questions and Answers

What is the primary role of a promoter in the formation of a company?

To manage the day-to-day operations of the company

To take the necessary steps to form a company and set it going (correct)

To oversee the company's fiduciary duties to its stakeholders

To ensure the company's financial stability after incorporation

What is the significance of the case Twycross v Grant (1877)?

It introduced the concept of secret profits in company law

It defined the role of a promoter in the formation of a company (correct)

It established the promoter's fiduciary duty to the company

It outlined the remedies available to the company for breach of fiduciary duty

What is the consequence of a promoter's breach of fiduciary duty?

The company may report the promoter to the relevant regulatory authorities

The promoter may be disqualified from promoting future companies

The company may sue the promoter for damages and rescind the contract (correct)

The promoter may be imprisoned for fraudulent activities

What is the primary difference between a promoter's role and a company's management?

A promoter's role is temporary, while a company's management is permanent Signup and view all the answers

What is the basis of a promoter's fiduciary duty to the company?

The company's reliance on the promoter for its formation Signup and view all the answers

What is the significance of the phrase 'fiduciary duty' in the context of a promoter's role?

It implies a trust-based relationship between the promoter and the company Signup and view all the answers

What is the relationship between a promoter and a company?

That of a trustee Signup and view all the answers

Why can't a company enter into a contract of employment with a promoter?

Lack of contractual capacity Signup and view all the answers

What can a company do to a promoter who has taken bribes or made a secret profit?

Call upon the promoter to disclose Signup and view all the answers

What is the provision in the Companies Act regarding pre-contractual benefits?

Section 20 (2) of the Companies Act Signup and view all the answers

What is the consequence of a company being non-existent at the time a contract is made on its behalf?

The promoters and not the company are liable for the contract Signup and view all the answers

What is the consequence of a company ratifying a pre-incorporation contract?

The promoters become liable for the contract Signup and view all the answers