promotion (formation of a joint stock company part 1)

                                                             Promotion

Promotion stage includes all the steps right from conception of idea to starting the company, till it is formed. It is the process of planning and organising all the resources required to form a company. Promotion involves the discovery of business idea, its investigation and assembling, necessary resources to set up the business. The person who performs all the activities during the promotion stage is known as promoter. The promoter conceives the business idea and takes all initiatives to form a company. The promoter can be an individual, a group of persons or an institution.

The promoter performs the following functions. These functions are also known as steps in the promotion stage.

Steps in the promotion stage are:

Ø Identification of business opportunity

The promotion stage begins with the discovery of an idea to set up a business. It can be an idea to set up new business or an idea to set up a new business or an idea to expand the existing business. The promoter identifies the profitability of the idea analyzing the opportunities available in the area. The promoter also analysis the various resources required, amount of capital required and the degree of risk involved.

Ø Feasibility studies

After analyzing all the concepts related to the idea discovered, the promoter starts doing investigation to give practical shape to the idea. He does detailed investigation regarding cost, profitability, production process, demand of the product etc. While doing this, the promoter takes the help of specialist or experts such as chartered accountants, engineers etc. The specialists make an objective analysis of all the details collected by the promoter. The reports of the specialists help the promoter to take a decision regarding the size of the business, location of the plant, amount of capital etc.

Feasibility includes:

a)      Technical feasibility.

Sometimes the idea is good but technically it may not be possible to implement the idea. It may due to non-availability of raw materials, inputs, technology etc.The project is considered technically unfeasible unless the technology or other required inputs can be imported or are available in our country.

b)      Financial feasibility

If the required capital or funds for the business idea are so large that these cannot be arranged within the available means, then it is said to be financially unfeasible. For example, one may have an idea to urbanise the rural area but the funds required to carry out this idea are so huge that it may not be converted into action plan due to financial unfeasibility.

c)       Economic feasibility

Sometimes a project is abandoned just because it might not be very profitable. Generally businessmen prefer to carry on with the ideas which are profitable.

Ø Name approval

Two companies cannot have identical names. It is necessary for every company to get its name approved from the registrar so that it does not match with any other company’s name. Generally company gives these names in order of priority to the registrar. The registrar matches the name with the names of other companies and if it is not identical then the registrar approves the name.

Ø Fixing up signatories to memorandum of association

Promoters have to decide about the people who will be signing the memorandum. Usually the signatories of memorandum become the first directors of the company. Promoters also take their written consent to act as directors and ask them the registrar approves the name.

Ø Appointment of professionals

The promoter appoints the brokers and underwriters to ensure the availability of capital by sale of a company’s securities and solicitors are appointed to deal with the legal matters of the company. Bankers are appointed to have smooth financial dealings.

Ø Preparation of necessary documents

A promoter takes up the steps to prepare some legal documents of the company which have to be submitted to the registrar at the time of incorporation. The common documents which are prepared by a promoter are memorandum of association, article of association, prospectus etc. (These documents are explained in section 2.5 later.)