The Promotion Of The Corporation

AuthorJames D. Cox/Thomas Lee Hazen
ProfessionProfessor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
§ 5.1 Functions of Promoters
Promoters discover business opportu nities, prepare plans to take
advantage of them, and push those plans to completion. They perform
an essential economic f unction in assembling and coordinating the
necessary plan, materia ls, and personnel for new business enterprises.
Although there are ma ny professional promoters, people whose life’s
work is the conception and organization of business enterprises, most
business enterprises are conceived and orga nized by amateur promoters,
people who play the role of promoter only once or twice in a lifet ime,
usually in connection with a business with which they expect to be
permanently identified.
The typical promoter performs many varied services in launching
an enterprise, often enlist ing the aid of experts, lawyers, bankers,
solicitors, and other persons. The various act ivities of the promoter
may be classified as follows: (1) the discovery and investigation of a
promising business opportunity; (2) the formulation of business and
financial pla ns; (3) the assembling of the enterprise by negotiating and
obtaining some control over the subject mat ter by options or contracts
made on beha lf of t he propo sed cor porat ion or on the pr omoter’s c redit ;
(4) the making of arrangements for financing t he enterprise and issuing
securities; and (5) the arranging of the promoter’s own compensation.
A promoter often is in a position to sell the enterprise to pro spective
investors, and thus may seek a speculative profit in securities of t he
new company. Promoters may further attempt to take advantage
of their position and seek unreasonable, undisclosed, and excessive
compensation. These “secret profits” are often available to promoters
because they are usua lly in complete control of the enterprise in its early
stages. Accordingly, courts have r uled that a promoter owes fiduciary
duties to the company and cannot profit unduly at its expense.
§ 5.2 Pre-incorporation Contracts:
Questions Raised
Under modern statutes, formal incorporation is relatively quick, sim-
ple, and inexpensive, but promoters may still find it desirable, and in
some instance s essential, to make arrangement s before incorp oration of
the business to ensure that the corporation will have needed property,
funds, patent rights, licenses, ser vices, or key employees. Thus, before a
66 | C  C G: C  L
cox85509_05_c05_p065-072.indd 66cox85509_05_c05_p065-072.indd 66 6/28/12 9:15 AM6/28/12 9:15 AM

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT