Meaning of Promoter
There is no statutory definition of a promoter. but in simple terms, a promoter in one who usually per forms the preliminary duties necessary to bring a company into existence and float it. A promoter undertakes to form a company with reference to a given project and performs various formalities required for starting a company. A promoter may be:
(a) an individual;
(b) a firm;
(c) an association of persons;
(d) a company.
Every individual connected with the formation of a company cannot be called a promoter. Thus, the persons who assist the promoters in performing the various legal formalities, are not promoters (e.g., accountants, solicitors, professional advisors, tax consultants, etc.).
Types of Promoter
- Professional promoters: They are specialists in forming a new corporate enterprise. After promoting an enterprise, they eventually hand over the control and management to the shareholders of the company.
- Occasional promoters: Promoters who are not involved in promotion work on a regular basis are called occasional promoters. Promotion is not their main occupation, and after promoting a company, they go back to their original profession.
- Financial institutions as promoters : Some financial institutions or financiers may take up the promotion of a company. After the incorporation of the company, financiers get their fixed remuneration and leave it. Banking and insurance companies have been engaged as institutional promoters. These promoters provide technical, managerial and financial assistance for the promotion of new enterprises.
- Enterpreneuring promoters : These promoters conceive and idea of the new business unit, do the necessary preliminary work in setting up the business unit and (iv) ultimately control and manage the same.
- Technical firms as promoters : Engineers and technical experts sometimes pick up the lucrative idea of business promotions. They are not in the promotional work on a regular basis. They take up the promotion of some company and then go back to their earlier profession.
- Government as a promoter : Since independence, the Government of India has emerged as a big promoter of enterprises. The Government (Central or State or both) have become promoters for public sector undertakings, economic organizations, defence industries, oil and natural gas, etc.)
Functions of Promoter
- A promoter selects the line to business of a proposed company. He studies the future possibilities of the business of the proposed company.
- He decides the name of the company, objects of the company and also to decide where its registered office should be situated.
- He prepares the memorandum of association and articles of association and files these documents with the Registrar of Companies.
- He takes necessary steps to get the company registered. He makes necessary arrangements for the initial capital of the proposed company.
- He selects the first Director of the proposed company. He appoints the banker, auditors, brokers and legal advisors for the proposed company.
- He enters into preliminary contracts with different parties (i.e vendors, underwriters, etc.). He makes necessary arrangements for the allotment of shares and securities.
Stages of Promotion
- Discovery of business opportunities: A promoter conceives the idea of a company. A promoter is to discover the business opportunities, considering availability of human and non-human resources. He is to consider whether idea is practical or feasible in the light of the proposed risks and profitability.
- Detailed investigation of the idea conceived : Detailed investigation regarding commercial feasibility is absolutely essential before capital is invested to implement the idea conceived. Detailed investigation may relate to : (a) Market conditions (b) Demand for the product to be manufactured; (c) Estimated cost of production ; (d) Estimated profit margin, and (e) Capital requirement of the posed business. Such an investigation gives a critical appraisal of the idea conceived and reveals whether the idea is commercially feasible or not. The services of experts may be needed to prepare a project report.
- Verification of the results of investigation : The reports submitted by the investigators must not be accepted without getting them verified by a separate team of impartial experts.
- Assembling of different elements of the business : When the results of the investigation is favorable, the promoter should go ahead with the promotion of A company.
- Verification of the results of investigation: The reports submitted by the investigators must not be accepted without getting them verified by a separate team of impartial experts.
- Assembling of different elements of the business: When the results of the investigation is favourable, the promoter should go ahead with the promotion of a company.