Business Studies
ASSERTION

A transferee of shares cannot sue the promoters of a company for misinformation in the prospectus.

REASON

The information provided by the company promoters in the prospectus is addressed only to the original allottees.


ANSWER

Both Assertion and Reason are correct and Reason is the correct explanation for Assertion


SOLUTION
The promoter is liable for untrue statements, made in the prospectus. 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.
Legal Position of Promoters. In the eyes of law, a promoter is not an agent or a trustee of the company. He stands in a fiduciary relationship with the company he is promoting. Fiduciary relationship is the relationship based on trust and faith.
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Assertion & Reason Medium Published on 18th 08, 2020
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