Corporate and Other Laws · Incorporation of Company and Matters Incidental Thereto

Promoters and Their Legal Position under Section 2(69)

Updated 4 October 2026 · Fact-checked

A promoter is a person who is named as such in a prospectus or the annual return, or who controls the company's affairs, or whose advice the Board is accustomed to follow (section 2(69)). To answer questions, apply the three limbs, then state the fiduciary duties and liabilities.

Understand Promoters and Their Legal Position

A company does not appear on its own. Someone must conceive the business idea, gather people and money, and complete the formalities of registration. That person is the promoter. The word covers the work of getting a company started, but the Companies Act, 2013 defines it by test, not by activity.

Section 2(69) gives three limbs. A person is a promoter if they (a) are named as such in a prospectus or identified by the company in the annual return referred to in section 92; or (b) have control over the affairs of the company, directly or indirectly, whether as shareholder, director or otherwise; or (c) are a person on whose advice, directions or instructions the Board is accustomed to act. Limb (c) does not apply to a person acting merely in a professional capacity. So a lawyer, a chartered accountant or a banker who only gives professional advice is not a promoter.

The promoter's legal position is unusual. Before incorporation the company does not exist, so the promoter cannot be its agent, trustee or employee. Yet the promoter stands in a fiduciary position towards the company. This means they must act in good faith for the company's benefit and must not make a secret profit.

A promoter is also different from a director. A promoter acts at the formation stage and may or may not later become a director. A director is appointed to the Board and manages the company. One person can be both, but the two roles are tested separately.

The key practical issues are: duties, liabilities (to the company, and to investors for prospectus misstatements), remuneration, and pre-incorporation contracts. Learn each as a short rule with its reason.

Key rules to remember

Promoter under section 2(69): Promoter = (a) named in prospectus or identified in annual return (section 92) OR (b) has control over company's affairs, directly or indirectly OR (c) Board accustomed to act on advice, directions or instructions; Any one limb is enough. Limb (c) does not cover a person acting merely in a professional capacity.
Legal position: Promoter is not an agent or trustee of the company, but stands in a fiduciary position; The company is not yet in existence, so no agency is possible before incorporation.
Core duties: Act in good faith + make full disclosure + no secret profit; Any profit made must be disclosed to the company. If not, the company can claim it or rescind the contract.
Pre-incorporation contracts: Company cannot be bound by or sue on a contract made before it exists; it can adopt the benefit only by a fresh contract after incorporation; Ratification is not possible. The promoter is usually personally liable on such contracts.
Promoter vs director: Promoter = formation stage, tested by section 2(69); Director = Board member, appointed under the Act; A promoter need not be a director, and a director need not be a promoter.

How to solve Promoters and Their Legal Position questions

Use this order for any question on promoters, whether it asks for a definition, duties, liability or a contract problem.

1Identify what is asked: definition, legal position, duties, liability, remuneration or pre-incorporation contract.
2If a person is in the facts, test them against the three limbs of section 2(69). Say which limb applies and why.
3Check for the professional-capacity exception. A professional giving advice only is not a promoter.
4State the legal position: not an agent or trustee, but a fiduciary. Give the reason: the company does not yet exist.
5Apply the duty or liability rule to the facts. Ask whether there was disclosure, secret profit or a prospectus misstatement.
6For contracts made before incorporation, state that the company is not bound and cannot enforce, and that the promoter is generally personally liable.
7Write a clear conclusion in one line that answers the question asked.

Quickest way: Three-limb test and fiduciary rule

When to use it: Use for MCQs and short written answers where facts describe a person's role in forming a company.

MCQs: look for keywords. 'Named in prospectus', 'control', or 'Board accustomed to act' point to a promoter. 'Only gives professional advice' points to not a promoter.
Eliminate options that call the promoter an agent or trustee of the company. The correct idea is fiduciary position.
For secret profit facts, choose the option that lets the company recover the profit or rescind.
Written answers: use the format Provision, Facts, Conclusion. Quote section 2(69) in one line, apply it to the person, then conclude.
Add one line of reasoning for each point. Step marks depend on the reason, not only the conclusion.

Common mistakes in Promoters and Their Legal Position

Calling the promoter an agent or trustee of the company.
Students link fiduciary duty with trusteeship.
Fix: Write that the promoter is neither agent nor trustee, because the company is not yet in existence, but stands in a fiduciary position.
Treating a lawyer or chartered accountant who advises on incorporation as a promoter.
Students forget the proviso to section 2(69).
Fix: Limb (c) does not apply to a person acting merely in a professional capacity. Check this before concluding.
Saying a company can ratify a contract made before incorporation.
Students apply the agency rule of ratification.
Fix: A company cannot ratify an act done before it existed. It can only make a new contract after incorporation.
Assuming every promoter must be a director.
The two roles often overlap in practice.
Fix: State that they are separate roles. A promoter is identified by the section 2(69) test and a director by appointment to the Board.
Requiring all three limbs of section 2(69) to be met.
Students read the limbs as a combined test.
Fix: The limbs are alternatives. Satisfying any one is enough to make a person a promoter.

Worked examples

Example 1

Rohan, a chartered accountant, advised the founders of Alpha Ltd on its incorporation and was paid only his professional fee. He has no shareholding and takes no part in running the company. The Board follows his advice on tax matters. Is Rohan a promoter?

Show the solution

Section 2(69) makes a person a promoter if they are named as such in a prospectus or the annual return, or control the company's affairs, or the Board is accustomed to act on their advice, directions or instructions.
Rohan is not named as promoter and has no control through shareholding or otherwise.
The Board follows his advice, which fits limb (c) on the surface.
However, the proviso says limb (c) does not apply to a person acting merely in a professional capacity.
Rohan acts only as a professional and is paid a professional fee.

Answer: Rohan is not a promoter, because his advice is given purely in a professional capacity and the proviso to section 2(69) excludes him.

Example 2

Before Beta Ltd was incorporated, its promoter Meera signed a contract with a supplier for machinery in the name of 'Beta Ltd'. After incorporation, the supplier wants to sue Beta Ltd for the price. Advise the supplier and state whether Beta Ltd can enforce the contract.

Show the solution

A company has no legal existence before incorporation, so it cannot be a party to a contract made earlier.
A company cannot ratify a contract made before it came into existence, as there was no principal at that time.
Therefore Beta Ltd is not bound by the contract and the supplier cannot sue it on that contract.
For the same reason, Beta Ltd cannot enforce the contract against the supplier.
The supplier may look to Meera, who generally is personally liable on a contract made for a non-existent company.
Beta Ltd may make a fresh contract with the supplier after incorporation if it wants the machinery on those terms.

Answer: The supplier cannot sue Beta Ltd on the pre-incorporation contract, and Beta Ltd cannot enforce it. The supplier can proceed against Meera personally, or enter a new contract with the company after incorporation.

Exam tips

Always quote the three limbs of section 2(69) and the professional-capacity exception. Examiners reward this precision.
In a scenario question, name the limb that applies. Do not just say 'he is a promoter'.
Remember the order of reasoning for fiduciary status: company not in existence, so no agency, so fiduciary position.
Use a short comparison table in your head for promoter versus director, but write it as two or three bullet points in the answer.
For pre-incorporation contracts, write both sides: the company is not bound and cannot enforce, and the promoter is personally liable.

Practice questions from Incorporation of Company and Matters Incidental Thereto

Promoters and Their Legal Position: frequently asked questions

What is the definition of promoter under section 2(69)?

A promoter is a person named as such in a prospectus or identified by the company in the annual return under section 92, or one who has control over the company's affairs, or one on whose advice, directions or instructions the Board is accustomed to act. Acting merely in a professional capacity does not make a person a promoter under the third limb.

What is the difference between a promoter and a director?

A promoter is concerned with forming the company and is identified by section 2(69). A director is a person appointed to the Board of the company, who then manages its affairs. A person can be both, but one role does not automatically create the other.

Is a promoter an agent or trustee of the company?

No. The company does not exist before incorporation, so the promoter cannot be its agent or trustee. The promoter does stand in a fiduciary position, so must act in good faith and not make a secret profit.

Can a company be bound by a contract made by its promoter before incorporation?

No. A company cannot be bound by, or enforce, a contract made before it existed, and it cannot ratify it afterwards. It can make a new contract after incorporation, and the promoter is usually personally liable on the earlier one.