Section A

What is the legal status of a 'promoter' of a company?

Answer options:

They are an agent of the unformed company.

They owe fiduciary duties to the company being formed.

They are automatically the first directors of the company.

They have no legal responsibilities once the company is incorporated.

How to approach this question

Understand the special relationship of trust between the person setting up the company and the company itself.

Full Answer

B.They owe fiduciary duties to the company being formed.✓ Correct

A promoter is someone who undertakes to form a company. Because the company does not yet exist, they cannot be its agent. However, the law imposes fiduciary duties on promoters, meaning they must act in good faith and not make secret profits at the expense of the new company (Erlanger v New Sombrero Phosphate Co).

Common mistakes

Assuming a promoter is an agent of the pre-incorporated company.

Question 33 All questions Question 35

Practice the full ACCA LW — Corporate and Business Law Practice Exam 6

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