Chapter: 4.2 Prospectus and Promoter in the Roles, Rights and Liabilities

Prospectus and Promoter

The Promoter must ensure that the prospectus:
i)    Contains the necessary particulars,
ii)    Does not contain any untrue or any misleading statement or does not omit any material fact.

If Promoter fails to perform these above-mentioned duties then:
i)    allotment of shares m ay be set aside
ii)    he may be sued for damages.
iii)    he may be sued for compensation for misrepresentation.
iv)    he may be sued for damages by shareholders, who have statutory requirements as to the contents of the prospectus and
v)    he may become liable for criminal proceedings.

Remuneration of Promoter:

A Promoter has no right to get compensation from the company for his services in promoting company unless there is a contract to that effect. If there is no such contract, he is not entitled to get any compensation in respect of any payment made by him in connection with the formation of the company.

In practice, a Promoter takes remuneration for his service by one of the following ways:

1.    He may sell his own property at a profit to the company for cash or fully paid shares provided he makes a disclosure to that effect.
2.    He may be given an option to buy a certain number of shares in the company at par.
3.    He may take commission on the shares sold.
4.    He may be paid in lump sum by the company.