question of fact; but once an affirmative conclusion is
reached, equity clothes such promoter with a fiduciary relation towards
the company which he has been instrumental in creating. This doctrine is
now well established, and its good sense is apparent when once the
position of the promoter towards the company is understood.
Promoters--to use Lord Cairns's language in _Erlanger_ v. _New Sombrero
Phosphate Co._, 3 A. C. 1236--"have in their hands the creation and
moulding of the company. They have the power of defining how and when
and in what shape and under what supervision it shall start into
existence and begin to act as a trading corporation." Such a control
over the destinies of the company involves correlative obligations
towards it, and one of these obligations is that the promoter must not
take advantage of the company's helplessness. A promoter may sell his
property to the company, but he must first see that the company is
furnished with an independent board of directors to protect its
interests and he must make full and fair disclosure of his interest in
order that the company may determine whether it will or will not
authorize its trustee or agent (for such the promoter in equity is) to
make a profit out of the sale. It is not a sufficient disclosure in such
a case for the promoter merely to refer in the prospectus to a contract
which, if read by the shareholders, would inform them of his interest.
They are under no obligation to inquire. It is for the promoter to bring
home notice, not constructive but actual, to the shareholders.

When a company is promoted for acquiring property--to work a mine or
patent, for instance, or carry on a going business--the usual course is
for the promoter to frame a draft agreement for the sale of the property
to the company or to a trustee on its behalf. The memorandum and
articles of the intended company are then prepared, and an article is
inserted authorizing or requiring the directors to adopt the draft
agreement for sale. In pursuance of this authority the directors at the
first meeting after incorporation take the draft agreement into
consideration; and if they approve, adopt it. Where they do so in the
exercise of an honest and independent judgment, no exception can be
taken to the transaction; but where the directors happen to be nominees
of the promoter, perhaps qualified by him and acting in his interest,
the situation is obviously open to grave abuse. It is not too