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Promoters
Course: Corporations Law 1 (LAW305)
152 Documents
Students shared 152 documents in this course
University: University of Tasmania
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Promoters
Meaning of ‘promoter” Twycross v Grant: one who undertakes to form a company with reference
to a given purpose and to set it going and who takes the necessary steps to accomplish that
purpose.
Active promoter
One who actively undertakes the formation of a company by carrying out the procedure
necessary for incorporation. A promoter will usually form a company as part of an
entrepreneurial scheme.
Person who actively take the required steps to form a company and cause it to acquire
assets in a professional capacity, on behalf of a promoter are not promoters. [Solicitors and
accountants are not promoters].
Where a company becomes a promoter due to the activities of an officer, that officer is not a
promoter because they do not stand to personally gain from the promotion.
However, an officer who represents the company’s directing mind and will may be
considered a promoter.
Passive promoters.
A person who takes no active part in the formation of a company and the raising of its share capital
but leaves this to others on the understanding that they will profit from the enterprise, may be
considered a promoter.
Tracy v Mandalay Pty Ltd
A company purchased land on which it intended to construct a block of flats. The land was then sold
at a profit to Mandalay. Mandalay advertised and attracted many applicants for parcels of shares,
each of which entitled the owner to sole use of a flat. The flats were not built and Mandalay brought
an action against the promoters and vendor of the land to recover the money paid by its
shareholders.
Shareholders who initially purchased the land took part in the scheme and were promoters. Others
were held to be promoters even though they fell out with the active promoters and stood only to
recover their original contributions.
Duties of promoters
Fiduciary duties: these are owed throughout the period for which a person is a promoter.
Disclosure of interest in a contract
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218
A syndicate purchased an island which it hoped would prove to contain valuable minerals. A
company was formed for the purpose of purchasing the island from the syndicate. The head of the
syndicate nominated the directors of this company and at its first meeting, the company adopted the
contract. It turned out that the island was worth less than the purchase price the company had paid.
In this way, the promoters made a profit to the detriment of the company and its shareholders.
Held: the company could rescind the contract and get back the purchase money of the island, with
the island returning to the syndicate.