What is Promotion?
The promotion of a company is the first important preliminary stage where necessary steps are taken for the registration of a company. Promotion is the process of organizing and planning the finances of a business enterprise under the corporate form. In other words, promotion means the taking of such steps as would persuade a number of persons to come together for the achievement of an organization. It is the discovery of business concern for the purpose and subsequent organization of funds, property, and managerial ability of promotion concern for the purpose of making profits therefrom. The persons who undertake the task of promotion are called promoters.
Who is a Promoter?
U/S 2(69) of the Companies Act 2013 Promoter means a person:
- Who has been named as such in a prospectus or is identified by the company in the annual return referred to the Section 92; or
- Who has control over the affairs of the company, directly or indirectly whether as a shareholder, director, or otherwise; or
- In accordance with whose advice, directions, or instructions the Board of Directors of the company is accustomed to act.
Provided that nothing in sub-section (c) shall apply to a person who is acting merely in a professional capacity.
Thus the following four categories of persons fall within the definition of the expression 'promoter'-
- a person who has been named as such in a prospectus or
- a person identified by the company in the annual return referred to in section 92 or
- a person who has control over the affairs of the company or
- a person in accordance with whose advice, directions, or instructions the Board of Directors of the company is accustomed to act.
A promoter is a person who brings a company into existence. A company may have several promoters. A promoter may be an individual, a firm, or a body corporate, One existing company may promote another new company. Everyone who is connected with the formation of a company may not be a promoter. A person who merely acts in a professional capacity on behalf of a promoter such as a solicitor, engineer, accountant, or valuer is not a promoter in the eye of the law.
What are the functions of a promoter?
A promoter takes all the necessary steps to create and mold a company and set it going. The promoters function till the board of directors of a company is legally constituted and starts governing the company.
Promoters perform the following functions:
1. Discovery of Idea
It promotion stage begins with the discovery of an idea to set up a business. It can be an idea to set up a new business or an idea to expand the existing business. The promoter also analyses the amount of capital required and the degree of risk involved.
2. Detailed Investigation.
After analyzing all the concepts related to the idea discovered, the promoter starts doing a detailed investigation regarding cost, profitability, production process, demand for the product, etc. While doing the detailed investigation the promoter takes the help of specialists or experts such as chartered accountants, engineers, etc. The reports of specialists help the promoter to take a decision regarding the size of the business, location of the plant, amount of capital, etc.
3. Assembling of Resources.
In this stage, a practical shape is given to the idea which is investigated and also verified by specialists. The promoter starts collecting all the resources necessary to form a company. The promoter makes contracts for the purchase of material, land, machinery, recruitment of staff, etc.
4. Preparing Preliminary Documents.
After assembling the physical, financial, and human resources, the promoter prepares or gets prepared the necessary documents which are compulsory to be prepared for the formation of a company.
- Memorandum of Association
- Articles of Association
- Prospectus
5. Entering into Preliminary Contracts.
The promoter signs a contract with different parties before the incorporation of the company. Generally, the company approves these contracts after incorporation but in case of the company does not approve these contracts, then the promoter is personally liable for these contracts.
6. Naming a Company
The promoter has to select the name of the company. While selecting the name the promoter keeps in mind that the name should not be identical to the name of any of any other company.
7. Appointment of Bankers, Brokers, Solicitors, and Underwriters.
The promoter appoints brokers and underwriters to ensure the availability of capital by the sale of the company's securities, solicitors are appointed to deal with the legal matters of the company and bankers are appointed to have smooth financial dealing.
