'Promoter of a company is a person who does the necessary preliminary work in connection with the formation and the establishing of the company'. Comment.

Generally Promoter of a company is a person who does the necessary preliminary work in connection with the formation and the establishment of the company. It is promoters only who conceives an idea, develops it, formulates a scheme or project and takes all the necessary steps for the formation of a company to implement the project or the scheme. Before the company is registered by the Registrar promoters continue to be known as promoters. They gather funds for meeting the expenses in connection with the formation of the company and spend them, which are known and designated as "preliminary expenses" and a provision is made in the articles of association of the company authorising the company and its directors to reimburse promoters the preliminary expenses incurred by them, and also a provision for the formalisation of the contracts which the promoters of the company had entered into with third parties prior to the birth of the company. Promoters usually enter into contracts with the prospective directors, solicitors, bankers, brokers, underwriters, auditors, secretary, manager and with those who offer to sell land, plant, machinery equipment etc. for implementing the proposed project. Such contracts are known as "promoters' contracts" which are not binding on the company because the company had not come into existence when they were entered into with third parties by the company's promoters. However, as a matter of practice, the company, on its incorporation enters into fresh contracts with the third parties on the lines of the promoters' contracts, which then become binding on the company.