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Abstract

In view of the peculiar position of control which a promoter occupies in relation to the proposed corporation, with resultant opportunities for making unconscionable profits, courts have uniformly regarded him as standing in a fiduciary relationship toward the corporation. Accordingly, when a promoter seeks to make a profit from a transfer of property to the corporation, he must obtain the consent of the latter under penalty of having to disgorge such profit at a later time at the suit of the corporation itself or persons acting in the latter's behalf. Such liability is to be distinguished from the liability of a promoter to purchasers individually for fraudulent misrepresentation in the sale of corporate securities. And it is not to be confused with the totally different rule that creditors of an insolvent corporation may recover from promoters where stock has been issued to the latter in exchange for property put in at gross overvaluations.

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