Ross owns a licence to extract minerals from a tract of land which is known to be rich in mineral deposits. To fund his venture and start digging and extraction operations, Ross needs to acquire funds from investors. Ross plans to register a company called Friends Pty Ltd and find investors to become shareholders in the new venture. Ross did not pay much money to acquire the extraction licence, so he will surely make a lot of money if the extraction proceeds. His plan is for he and his wife to become directors in Friends Pty Ltd.

Required: Answer the following questions:

(a) What are Ross’ duties as a promoter to his co-investors? 

(b) What actions should Ross take to set up Friends Pty Ltd? 

Answer rating: 100% (QA)

MEANING The idea of carrying on a business which can be profitably undertaken is conceived either by a person or by a group of persons who are called promoters After the idea is conceived the promoters make detailed investigations to find out the weaknesses and strong points of the idea to determine the amount of capital required and to estimate the operating expenses and probable income The term promoter is a term of business and not of law It has not been defined anywhere in the Act but a number of judicial decisions have attempted to explain it Various definitiona given by Authors According to Justice C Cockburn Promoter is one who undertakes to form a company with reference to a given object and to set it going and who takes the necessary steps to accomplish that purpose According to Palmer Company promoter is a person who originates a scheme for the formation of the company has the memorandum and the articles prepared executed and registered and finds the first directors settles the terms of preliminary contracts and prospectus if any and makes arrangement for advertising and circulating the prospectus and placing the capital According to Guthmann and Dougall Promoter is the person who assembles the men the money and the materials into a going concern From the definition promotar is concluded that Promoter is the person who originates the idea for formation of a company and gives the practical shape to that idea with the help of his own resources and with that of others A person cannot be held as promoter merely because he has signed at the foot of the Memorandum or that he has provided money for the payment of formation expenses The promoters in fact render a very useful service in the formation of the company A promoter has been described as a creator of wealth and an economic prophet The promoters carry a considerable risk because if the idea sometimes goes wrong then the time and money spent by them will be a waste Duties of a Ross as a promoter The duties of promoters are as follows 1 To disclose the secret profit The promoter ... View the full answer