Secret profits of promoters meaning

Secret profits of promoters are undisclosed gains taken by a company promoter from dealing with the company or its property, without full and frank disclosure and informed consent. In UK and Irish company law this is a descriptive, case-law concept reflecting a promoter’s fiduciary duty from formation until an independent board is in place. A promoter must not retain any profit from a transaction in which the company is concerned unless all material facts and the amount/nature of the profit are disclosed to, and approved by, an independent board or the company’s disinterested shareholders; disclosure to the promoter or interested parties is insufficient. If a secret profit is made, the company may claim an account of profits, seek rescission of the contract (where practicable), and obtain related equitable relief. Effective ratification requires fully informed approval by disinterested shareholders. Leading authorities include Erlanger v New Sombrero Phosphate Co and Gluckstein v Barnes. Usage and remedies are broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland, though statutory terminology varies. Practically, promoters and advisers should ensure documented disclosure and independent approval during incorporation, asset acquisitions and fundraisings to avoid liability.