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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.

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.