UNIT 4

PROMOTERS

Promoters play a crucial role in the formation of a company. A promoter is an individual or group of individuals who undertake to form a company and set it going and who take the necessary steps to accomplish that purpose. The promoter may also be involved in preparing the prospectus, raising capital, and ensuring that the company is registered and complies with all legal requirements.

DUTIES OF PROMOTERS

In Nigeria, the Companies and Allied Matters Act (CAMA) 2020 provides the legal framework for the duties and responsibilities of promoters. See sections 61-62 of CAMA 2020 which specifically address the duties and liabilities of promoters and they include the following;

1. Fiduciary duty: this is where promoters stand in a fiduciary relationship with the company they are forming. This relationship imposes several duties, including:
   
   1. Duty to disclose: this is where promoters must disclose any personal interest they have in the transactions of the company. Failure to disclose such interests can lead to the promoter being held liable for any profits made from the non-disclosure. See section 61 which provides that a promoter must disclose any profit made from transactions related to the formation of the company. The company may rescind any contract entered into between the company and the promoter if the promoter fails to disclose any interest in the contract and the case of Lagos State Development and Property Corporation v. Nigeria Land and Sea Foods Ltd. (1992) 2 NWLR (Pt. 223) 378 where the court held that promoters have a fiduciary duty to disclose any interest they have in the property being sold to the company. The failure to disclose such interest can lead to the contract being set aside.
   2. Duty to account: this is where promoters must account for any secret profit made during the promotion of the company. This means that if a promoter sells property to the company at a profit, they must disclose this profit to the company and may be required to hand it over. See the case of Olokunola v. FRN (2008) 7 NWLR (Pt. 1085) 38 where the court emphasized that promoters must act in good faith and avoid making secret profits and any profit made must be disclosed and accounted for to the company.
2. Duty of care and skill: this is where promoters are expected to exercise reasonable care and skill in the performance of their duties. If a promoter fails to meet this standard, they may be held liable for any loss or damage suffered by the company as a result.
3. Duty to avoid conflict of interest: this is where promoters should avoid situations where their personal interests conflict with their duties to the company. If a conflict of interest arises, the promoter must disclose it to the company and refrain from taking advantage of the situation.

REMEDIES AGAINST PROMOTERS

1. Rescission of contract: this happens if a promoter fails to disclose an interest in a transaction, the company can rescind the contract. This means the contract will be set aside, and both parties will be restored to their original positions.
2. Damages: this is where the company can claim damages from a promoter for any loss suffered due to the promoter’s breach of duty. This remedy aims to compensate the company for any financial loss incurred.
3. Recovery of secret profits: this is where the company can recover any secret profit made by the promoter. This ensures that promoters do not benefit at the expense of the company.

CONCLUSION

Promoters play a vital role in the formation of a company, and their duties are clearly defined under Nigerian law. By adhering to their fiduciary duties, exercising care and skill, and avoiding conflicts of interest, promoters ensure that the company is established on a solid foundation. Failure to comply with these duties can lead to significant legal consequences, including the rescission of contracts, claims for damages, and the recovery of secret profits.