Corporate and Business Law (Global) · The formation and constitution of a company

Company Formation and Promoters: Registration Steps and Promoter Duties

Updated 11 October 2026 · Fact-checked

Company formation is the process of registering a company with the registrar by filing an application, the constitution and details of officers and members. On registration the registrar issues a certificate of incorporation. A promoter is anyone who takes steps to set the company up, and owes fiduciary duties to it.

Understand Company Formation and Promoters

A company is a separate legal person. It only exists once it is incorporated, which means registered with the official registrar of companies. Before that moment there is no company, only people planning one.

The people who plan and set up the company are called promoters. A promoter is a person who undertakes to form a company for a business purpose and takes the necessary steps to do so. Typical steps include finding directors, arranging the constitution, preparing documents and raising capital. Professionals acting in their professional capacity, such as a solicitor who prepares the documents, are generally not treated as promoters.

The LW Global syllabus is not tied to one country's statute, so learn the general pattern. The usual application to the registrar includes the company's proposed name, the type of company, the registered office address, the constitution (often articles of association, and in some systems a memorandum), details of the first directors and secretary where required, and details of the first members and their shares. A statement of compliance or similar declaration is often required. If the registrar is satisfied, the company is registered and issues a certificate of incorporation.

The certificate is conclusive evidence that the registration requirements were met and that the company exists from the date on it. Even if a defect occurred in the process, the company is still validly formed.

Promoters stand in a fiduciary position towards the company. They must act in good faith, not make a secret profit and disclose any personal interest in transactions with the company. Promoters are not agents or trustees of the company, since it does not yet exist, but the law still holds them to these duties. A promoter is also personally liable on pre-incorporation contracts, and a director is a different role: a director is appointed to manage an existing company, though a promoter may later become a director.

Key formulas to remember

Moment of existence: Company exists from the date on the certificate of incorporation; Before this date there is no separate legal person.
Effect of certificate: Certificate of incorporation = conclusive evidence that registration requirements were met; Defects in the process cannot be used to challenge the company's existence.
Promoter's duties: Good faith + no secret profit + full disclosure of any interest; Owed to the company, as a fiduciary relationship.
Remedies against a promoter in breach: Rescind the contract OR recover the secret profit (with damages where relevant); Rescission needs restitution to be possible. The company can also seek an account of the profit.
Promoter's pre-incorporation liability: Person who signs for a non-existent company is personally liable; The company cannot ratify a contract made before it existed.
Typical application contents: Name + type + registered office + constitution + officers + members and shares; Exact documents vary by jurisdiction. Know the common pattern.

How to solve Company Formation and Promoters questions

Use this method for any question on company formation or promoters, whether it is an objective question or a scenario.

1Decide the date. Was the act before or after the certificate of incorporation? This fixes whether the company exists.
2Identify the person. Is the individual a promoter (took steps to form the company), a professional adviser, or a director of an existing company?
3If the question is about registration, list the documents needed: application, constitution, officer details, member and share details, registered office.
4If the question is about the certificate, apply the conclusive evidence rule. A defect in formation does not undo incorporation.
5If the question is about duties, test for good faith, secret profit and disclosure. Check whether the promoter told an independent board or all members.
6Choose the remedy: rescission of the contract or recovery of the secret profit, and say who may claim (the company).
7For pre-incorporation contracts, say the company is not bound and the person who signed is personally liable.
8State the answer in one sentence and give the reason.

Quickest way: Date, role, duty

When to use it: Use in Section A or Section B objective questions where you have about three minutes or less.

Check the date against incorporation. Before it, no company exists.
Label the person: promoter, adviser or director.
Match the issue: documents, certificate, duty or liability.
Eliminate options that say the certificate can be challenged for defects or that the company can ratify earlier contracts.
Pick the option that states fiduciary duty, disclosure or personal liability correctly.

Common mistakes in Company Formation and Promoters

Saying a company exists once the documents are signed or submitted.
Students confuse preparing the application with completing it.
Fix: A company exists only from the date on the certificate of incorporation.
Treating a promoter as an agent or director of the company.
The roles overlap in everyday speech.
Fix: A promoter acts before the company exists and is a fiduciary. A director manages an existing company. One person may hold both roles at different times.
Claiming the company can ratify a pre-incorporation contract.
Ratification works for agents, so students assume it applies here.
Fix: A non-existent company cannot ratify. The person who signed is personally liable unless the contract says otherwise.
Treating every professional involved as a promoter.
Students over-read the word 'steps'.
Fix: A solicitor or accountant acting only in a professional capacity is generally not a promoter.
Saying a promoter can never make a profit.
Students overstate the secret profit rule.
Fix: A profit is allowed if it is fully disclosed to an independent board or to the members. The breach is the undisclosed profit.
Saying a formation defect makes the company void.
Students ignore the conclusive effect of the certificate.
Fix: Once the certificate is issued, the company is validly formed despite earlier defects.

Worked examples

Example 1

Anita and Ben plan a new company. On 1 March Anita signs a contract to buy equipment 'on behalf of Zeta Ltd', which is incorporated on 15 March. Zeta Ltd later says it is not bound. Who is liable on the contract?

Show the solution

Check the date: the contract was signed on 1 March, before incorporation on 15 March.
On 1 March Zeta Ltd did not exist, so it could not be a party and could not authorise anyone.
The company cannot ratify the contract after incorporation.
The person who signed the contract for the non-existent company is personally liable on it.

Answer: Anita is personally liable on the equipment contract. Zeta Ltd is not bound unless it makes a new contract after incorporation.

Example 2

Carlos, a promoter, buys land for ₹40,00,000 and, before the company is formed, plans to sell it to the company for ₹50,00,000. The company's only directors are Carlos and his brother, and the price and his profit are not disclosed to anyone else. After incorporation the company learns of this. What are the company's remedies?

Show the solution

Identify Carlos as a promoter: he took steps to set up the company and arranged its purchase of land.
He owes fiduciary duties: good faith, no secret profit, full disclosure.
Compute the profit: ₹50,00,000 − ₹40,00,000 = ₹10,00,000.
Check disclosure: only Carlos and his brother were on the board, so disclosure was not made to an independent board or to the members. The profit is secret.
The company may rescind the contract, if the land can be returned, or recover the ₹10,00,000 profit from Carlos.

Answer: Carlos breached his fiduciary duty by making an undisclosed profit of ₹10,00,000. The company may rescind the sale or recover the profit from him.

Exam tips

Always compare the date of each act with the date of the certificate of incorporation first. Many questions turn on this.
Know the word 'conclusive'. The certificate is conclusive evidence that registration requirements were met.
In a written answer on promoters, name the duty, apply it to the facts, then give the remedy. Do not stop at 'fiduciary'.
Do not state the exact documents of one country as universal. Use the general pattern: application, constitution, officers, members and shares.
Objective questions are marked all or nothing. Read every option for words like 'always' or 'never' before you choose.

Practice questions from The formation and constitution of a company

Company Formation and Promoters in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Company Formation and Promoters: frequently asked questions

What are the steps to form a company?

Choose the company type and name, prepare the constitution, and gather details of officers, members and shares. File these with the registrar with any declaration and fee required. If the registrar is satisfied, the company is registered and a certificate of incorporation is issued.

What is the difference between a promoter and a director?

A promoter takes the steps to set up a company, usually before it exists. A director is appointed to manage the company once it exists. The same person can be both, but the roles and duties arise at different times.

What duties does a promoter owe?

A promoter is a fiduciary. The promoter must act in good faith, must not make a secret profit and must disclose any personal interest in dealings with the company. Breach can lead to rescission of the contract or recovery of the profit.

What does the certificate of incorporation prove?

It is conclusive evidence that the registration requirements were met and that the company exists from the date shown. A defect in the formation process does not undo the company's existence.