Promoters generally owe a duty of utmost good faith, so as to not mislead any potential investors, and disclose all material facts about the company's business.
[2] Generally, promoters are in a fiduciary relationship with the company and its investors and shareholders, and must avoid conflicts of interests and exercise reasonable care in performing their duties.
If the promoter is the only shareholder, the company may, in compliance with the rule of the United States Securities and Exchange Commission (SEC) and similar rules in other jurisdictions, need to disclose the information prior to selling shares to the public.
A person, who subscribes for any shares or debenture in a company on the faith of the untrue statement contained in the prospectus, can sue the promoter for the loss or damages, sustained by the subscriber as the result of such untrue statement.
They conceive the idea of a new business unit, do the groundwork to establish it and may subsequently become a part of the management.
If the proposed endeavour gives promise of success and the promoter is willing to undertake the risk of forming the business, step must be taken to assemble various factors of production, such as land, labour, capital and managerial personnel.