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Remuneration paid to Promoters for Incorporation

23 March 2009

Plz help !

(1) How to account for remuneration payable to a Promoter for matters of incorporation??Is it at par with Preliminary Expenses or is it a Consultancy Fees to be accounted for after Incorporation ?

(2) In which year should the Promoter account for the Incomes receivable to him ? Whether in the Year of Incorporation or in the year in which the agreement to adopt such charges for remuneration is considered ? What to do in absence of any such contract ??

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3 Replies

CA CS CIMA Prakash Somani (Landmark Group) (23502 Points)
Replied 23 March 2009

It should be at par with priliminary expenses.

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CA CS CIMA Prakash Somani (Landmark Group) (23502 Points)
Replied 23 March 2009

A promoter is not an agent for the company which he is forming, because a company cannot have an agent before it comes into existence. Further more, he is not a trustee for the company because there is no company yet in existence. The promoter stands in fiduciary relation to a company and to those persons becomes shareholder later, the promoter is accountable to the company like an agent and trustee.

Before incorporation a company has no legal existence and so cannot make a contract. A promoter, therefore, has no legal right to claim remuneration for his services. If the promoter enters into a contract with the company about his remuneration, after the incorporation of company, then directors are liable to pay remuneration.

The remuneration may be paid in any of these ways. If a commission on business or property taken over by the company through him. A company may give him a lump sum amount in cash. Some shares can be allotted to him. He may take a commission at a fixed rate on shares sold. He may take an option to subscribe for certain non-issued shares of company at par within a fixed period.