PRE-INCORPORATION MATTERS Flashcards
Who is a promoter?
A promoter is anyone that takes steps to set a company going and takes the necessary steps to accomplish that purpose or undertakes raising capital for it.
SEC 85 CAMA
EDOKPOLOR V SEM-EDO WIRE
What does the case of TWYCROSS V GRANT states?
A person who has not taken any step towards formation of a company, but provided capital for the proposed company is a promoter.
Who else are regarding as promoters?
All subscribers to the memorandum(not shareholders)
When can a professional be regarded as a promoter?
- Where he acted out his professional capacity i.e helping the company obtain a director.
- A lawyer who incorporated the company and in lieu of his professional fees, decides to buy shares/or is granted shares in the company is a promoter of the company.
What type of relationship does a promoter have with a company?
A FIDUCIARY RELATIONSHIP
It is not an agency or trustee relationship.
What are the Duties of a Promoter?
- Duty not to make secret profit
- Duty to act in good faith
- Duty of confidentiality
- Duty to disclose fully
- Duty to Account
- Duty to disclose conflict of interest
- Duty not to expose the company to loss
SEC 86 CAMA
What are the remedies available to the company?
- Action for Damages
- Refusal to Ratify Pre-Incorporation Contract
- Refusal to ratify
- Action to Account for Proceeds of Secret Profit
- Recession
- Recovery of Funds and Monies paid
- Compensation
Are contracts entered into by promoters automatically binding on the company?
No! except it has been ratified by the company.
SECTION 96 CAMA
What are the modes of ratifying a contract entered into by a promoter?
- By the company’s BOD independent of the promoters
- All the members of the company(present and voting)
- The company at the AGM(where the promoter does not vote to ratify the transaction)
** Section 86 (3) CAMA**
Is a promoter entitled to Remuneration?
NO! because the consideration is past and not binding.
However he may be entitled to remuneration where;
1. The company has ratified the payment agreement between itself & the promoters
2. It is contained in the Articles of Association
3. There is a separate contract regarding payment. SEC 96(2)
What was the Common Law Position on pre incorporation contracts?
At common law, the position was that any contract entered into on behalf of a company before incorporation cannot be subsequently ratified after incorporation & are not binding on the company.
KELNER V BAXTER
What’s the current position on pre-incorporation contracts entered into?
It is binding where it has been ratified by the company.
In absence of any ratification, the promoters will be personally liable.
SEC 96(1) &(2) of CAMA
What are types of pre incorporation agreement?
- Shareholders agreements
- Joint venture agreements
- Memorandum of Understanding
- Employees contract agreement
- Promoters Service contract
- Directors Service contract-for managing directors
- Contract for payment of promoter’s expenses
WHAT ARE THE CONTENTS / CLAUSES OF SHAREHOLDERS AGREEMENT?
- Commencement clause
- Parties
- Recitals
- Management
- Capital Contribution
- Profit & Share Ratio
- Business object
- Consideration
- Confidentiality
- Winding Up
CONTENTS OF JOINT VENTURE AGREEMENT?
- Commencement
- Date
- Parties and their descriptions
- Registered office
- Confidentiality
- Consideration
- Transfer of technology
