Fiduciary duties of promoters

Promoters are in a fiduciary relationship with the company and must not accept bribes or make secret profits. They must keep proper accounts and make full disclosure of interests either to an independent board of directors or to members through a prospectus or other means. Provided full disclosure is made, any profit made by promoters selling property to the company can be retained. Where promoters breach their fiduciary duties, the company may claim damages in respect of any loss suffered resulting from the breach. Promoters’ failure to disclose a profit made on the sale of property to the company allows the company to set aside the transaction. In Erlanger v. New Sombrero Phosphate Co. (1878), a syndicate headed by E bought a lease of an island and then formed a company to take up the lease. They made a substantial profit on the sale of the lease to the company, but did not make a full disclosure of this. The company was able to rescind the contract. If the company elects not to rescind or has lost the right to do so, the company may recover the profit from the promoter: Gluckstein v. Barnes [1900].

Pre-incorporation contracts

Where contracts are made on behalf of the company before a certificate of incorporation is issued, the company cannot be liable on the contract and cannot ratify the contract after incorporation. However, a contract which ‘purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly. The section has been broadly interpreted in Phonogram Ltd v. Lane [1982] to cover any situation where a person acts on behalf of a non-existing company, even where no steps have been taken towards its incorporation.

Provisional Contracts by Public Companies

A public company originally registered as such is not able to commence business until the Registrar issues a certificate that the company has raised the statutory minimum capital (£50 000). Contracts made earlier are provisional, and the company and any officer in default is liable to a fine. The contract is not void but, if the company fails to comply with its obligations, the directors are liable to compensate the other party for any resulting loss or damage suffered.

Questions.

1) Why is the form of unlimited company rarely used?

2) What form of limited liability company is suitable for trading?

3) What is the main difference between a private limited company and a public limited company?

4) What does the legal definition of a subsidiary company state?

5) What clauses does the Memorandum of a company limited by shares contain?

6) What are the legal restrictions on a company name?

7) What must be kept and presented at the registered office?

8) What does the capital clause state?

9) What kind of a person is called a promoter?

10) What are fiduciary duties of promoters?

4. Find the following sentences in the text.

1) Эти преимущества теперь доступны для небольших закрытых компаний с ограниченной ответственностью, и форма компании с неограниченной ответственностью встречается редко.

2) Существуют две разные формы компании с ограниченной ответственностью: компания с ответственностью, ограниченной гарантией, и компания с ответственностью, ограниченной акциями.

3) Закрытая компания может иметь одного директора, тогда как открытая компания должна иметь по меньшей мере двоих директоров.

4) Отношения между холдинговой компанией и ее филиалами могут быть очень сложными.

5) Меморандум охватывает внешние стороны компании.

6) Компания может изменить свое название добровольно при помощи специальной резолюции.

7) Учредители не имеют права на вознаграждение от компании и несут личную ответственность за расходы по учреждению.