{"id":111,"date":"2017-11-13T04:20:06","date_gmt":"2017-11-13T04:20:06","guid":{"rendered":"https:\/\/epiksolution.org\/startup-company\/blog\/?p=111"},"modified":"2019-08-12T10:07:23","modified_gmt":"2019-08-12T10:07:23","slug":"the-role-of-promoters-in-forming-startup-organizations","status":"publish","type":"post","link":"https:\/\/www.startupcompanycounsel.com\/blog\/the-role-of-promoters-in-forming-startup-organizations\/","title":{"rendered":"The Role Of Promoters In Forming Startup Organizations"},"content":{"rendered":"

Promoters are Important Individuals to Startups<\/strong><\/p>\n

Often times when startup<\/a> organizations are formed, a promoter is appointed to form the Startup to organize it and find investment for its initial needs.\u00a0\u00a0 It is important to understand as the roles of promoters in the business world.<\/p>\n

Role of The Promoter<\/strong><\/p>\n

For some corporations, usually the smaller ones, the promoters typically become the incorporators, shareholders<\/a>, officers<\/a>, and directors of the new corporation.\u00a0 The purpose of the promoter is to set up the corporation and establish it.\u00a0 For example, the promoter will typically obtain and manage the initial financing of the corporation; arrange a meeting of potential investors<\/a>; negotiate and prepare the pre-incorporation<\/a> agreements; find office and factory spaces; complete all relevant paperwork for leases; and contract for any initial needs of the startup company.<\/p>\n

Promoter\u2019s Relationship to the Corporation<\/strong><\/p>\n

When individuals undertake the task of performing the initial steps to form a corporation, they will owe the corporation certain duties.\u00a0 Promoters stand in a fiduciary relationship to the corporation, and to any stockholders<\/a> of the corporation.\u00a0 For example, the promoter has a fiduciary to avoid self-dealing. This is also known as the duty of loyalty.\u00a0 This duty can arise when the promoter is looking to close a real estate deal for the business\u2019 location.\u00a0 The promoter cannot choose a better deal for his own furtherance and disadvantage the startup business in some way.<\/p>\n

Additionally, the promoters have a duty to disclose certain information to the startup business.\u00a0 The duty to disclose is satisfied in circumstances in which the promoter discloses the cost and manner to acquire certain assets to an independent board of directors<\/a> of the startup company and the board approves the transaction.\u00a0 In cases where such fiduciary duties<\/a> are breached, the promoter can be sued and held liable.\u00a0 In a potential action against the promoter for his or her breach of fiduciary duty of loyalty, the startup company may either avoid the transaction at issue or hold the promoter liable for the obtained profits and costs to the startup.<\/p>\n

Promoter\u2019s Liability for Pre-Incorporation Contracts<\/strong><\/p>\n

As a general rule, the promoter is typically personally liable on any contract he or she enters into on behalf of the startup company, unless the startup company expressly or implicitly adopts the contract after formation.\u00a0 Even after the startup company is formed, a startup does not automatically assume a contract and release the promoter from liability \u2013 instead, there must be an express agreement for the startup to assume the contract.<\/p>\n

Contact your San Jose Startup Company Business Lawyer Today<\/strong><\/p>\n

Because promoters have important duties, tasks, and personal liability, it is important to consult with your experienced business lawyer at Startup Company Counsel today to discuss all these important issues before and after formation of your startup company.\u00a0 Please call our office at (408) 441-7555 or email us today<\/a>.
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