Although under common law promoter is personally liable for the pre-incorporation contract, but there are some scope where the promoter can shift his liability to company.
A corporation's promoter is the person who arranges contracts for or on behalf of the corporation. This includes signing subscription agreements to sell securities to shareholders.
Until or unless the corporation ratifies and adopts the promoter's activity, the promoter is liable for these contracts. There must be a process for the formation of a company, which includes several stages. The promotion is the first stage of the process. At this point, a person known as a promoter is persuaded of the viability of a business. Several formalities must be completed in order to incorporate a company.
A promoter may be held liable if the section's provisions are not followed. A promoter may be held liable under sections 34 and 35 for any untrue statement in the prospectus to a person who subscribes for shares or debentures in reliance on such prospectus.
A promoter, even if he expressly purports to act as agent or trustee, is personally liable on all contracts made on behalf of the intended company, until the contract has been performed or rescinded by either party under some power in the contract or by consent of all parties.
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