A corporate promoter contracts with a corporation to help it solicit investors. Typically, a promoter is involved during the corporation's start-up phase but can be engaged any time the company wants to raise additional money prior to it going public. There aren't any professional credentials needed for a person to act as a corporate promoter but licensed professionals, such as investment bankers and underwriters, may sometimes operate in this capacity.
Setting up a corporation involves a number of players. Shareholders, directors and officers own and manage the company. An incorporator prepares, signs and files the paperwork to register the corporation with the proper authorities, while a promoter cultivates unrelated equity investors to pump initial funds into the business. In the US, the corporate promoter can be, but is not usually, the incorporator. In other countries, such as Australia, the promoter is defined as the person who both incorporates and raises funds for the company.
A corporation raises equity capital in two stages. The first stage is during start-up and includes the time period prior to the company going public. Once the corporation issues its initial public offering, raising capital through the sale of stock is highly regulated and can only happen with the assistance of licensed professionals. It is during the first stage that a corporation can contract with a promoter to help it attract investors.
In the first stage of fund-raising, a corporation deals with related and unrelated investors. Related investors are ordinarily the shareholders who initially set up the company. They usually know one another, and raise additional money from friends and family. A corporate promoter is hired to find unrelated investors when the company needs to expand beyond the limit of its related resources but is not yet ready to go public. The investors the promoter solicits are sometimes called angel investors or venture capitalists, but can be any individual or entity willing and able to take an equity stake in the company.
A corporate promoter works under a contract, and although he does not need to be licensed to perform his services, he has a fiduciary duty to the corporation and its shareholders to act in good faith. Courts have held that promoters are not allowed to operate when conflicts exist and cannot self-deal or take advantage of the position to enrich themselves or a related party. In many ways, the promoter holds a position that is analogous to a broker, with all of the legal responsibility of acting as an agent for the hiring corporation.
