Liabilities of Promoters Under Companies Act 1956

Promoters :

The persons who conceive an idea of a company decide and do the necessary work for formation of a company are called the promoters of the Company.

The promoters of a company stand undoubtedly in a fiduciary position though they are not the agent or a trustee of a company. They are the ones “who create and mold the company”.

They may have to enter into pre-incorporation contracts, which can be validated after the incorporation of the company for obtaining a certificate of incorporation. In India promoters generally secure the management of the company that is formed and have a controlling interest in the company’s management.

Below are the Liabilities of Promoters under Companies Act, 1956 :

They can be liable for non-compliance of the provisions of the Act;

The court may suspend the promoter from taking part in the management of the company;

Liable for any untrue statement in the prospectus to the person who has subscribed for any shares or debentures on the faith of the prospectus.

The liabilities are:-

a) To set aside the allotment of shares,

b) Sued for damages,

c) Sued for compensation

d) Criminal proceedings