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A corporate promoter can be hired to solicit investors during a corporation’s startup phase or before going public. They have a fiduciary duty to act in good faith and can be compared to a broker. Licensed professionals can also act as promoters.
A corporate promoter hires a company to help solicit investors. Typically, a promoter is involved during the corporation’s startup phase, but can be hired any time the corporation wants to raise additional cash before going public. There are no professional credentials required for a person to act as a corporate promoter, but licensed professionals such as investment bankers and underwriters can sometimes operate in that capacity.
The creation of a corporation involves several participants. Shareholders, directors and officers own and manage the company. A developer prepares, signs, and files paperwork to register the corporation with the proper authorities, while a promoter cultivates unrelated equity investors to inject start-up funds into the business. In the US, the corporate promoter may be, but usually is not, the developer. In other countries, such as Australia, the promoter is defined as the person who incorporates and raises funds for the company.
A corporation raises share capital in two steps. The first stage is during start-up and includes the period before starting the business. Once the company issues its initial public offering, raising capital through the sale of shares is highly regulated and can only happen with the assistance of licensed professionals. It is during the first stage that a company may hire a promoter to help it attract investors.
In the first stage of fundraising, a company deals with both related and unrelated investors. Related investors are usually the shareholders who initially created the company. They usually get to know each other and raise additional money from friends and family. A corporate promoter is hired to find independent investors when the company needs to expand beyond the limits of its related resources but is not yet ready to go public. The investors that the promoter solicits are sometimes called angel investors or venture capitalists, but they can be any individual or entity that is willing and able to take an equity interest in the company.
A corporate promoter works under contract, and although he does not need to be licensed to perform his services, he does have a fiduciary duty to the company and its shareholders to act in good faith. Courts have held that prosecutors cannot operate when conflicts exist and cannot self-prosecute or take advantage of a position to enrich themselves or a related party. In many ways, the promoter occupies a position analogous to a broker, with all the legal responsibility of acting as an agent for the contracted company.
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