A corporate promoter is hired by a company to assist it in finding investors. A promoter is typically involved during a company’s start-up phase, but they can be enlisted at any time the company needs to raise additional funds prior to going public. A person who acts as a corporate promoter does not need any professional credentials, but licensed professionals such as investment bankers and underwriters may occasionally act in this capacity.
A number of people are involved in the formation of a corporation. The company is owned and managed by its shareholders, directors, and officers. A promoter cultivates unrelated equity investors to pump initial funds into the business, while an incorporator prepares, signs, and files the paperwork to register the corporation with the appropriate authorities. The incorporator is not always the corporate promoter in the United States. The promoter is defined in other countries, such as Australia, as the person who both incorporates and raises funds for the company.
A company’s equity capital is raised in two stages. The first stage occurs during the early stages of a company’s development and includes the time leading up to its initial public offering. Raising capital through the sale of stock after a company’s initial public offering is highly regulated and can only be done with the help of licensed professionals. A corporation can hire a promoter to assist it in attracting investors during the first stage.
A corporation deals with related and unrelated investors in the first stage of fund-raising. The shareholders who founded the company are usually related investors. They usually know each other and rely on friends and family for additional funds. When a company needs to expand beyond its related resources but isn’t ready to go public, it hires a corporate promoter to find unrelated investors. The investors the promoter seeks are sometimes referred to as angel investors or venture capitalists, but they can be anyone willing and able to invest in the company.
Although a corporate promoter is not required to be licensed to perform his services, he has a fiduciary duty to the corporation and its shareholders to act in good faith. Promoters are not allowed to operate when conflicts exist, and they are not allowed to self-deal or use their position to enrich themselves or a related party, according to the courts. In many ways, the promoter is similar to a broker, with all of the legal responsibilities that come with acting as an agent for the hiring company.