chapter-9, class-xi

FORMATION OF A COMPANY

PROMOTION

INCORPORATION

FLOATATION

COMMENCEMENT OF BUSINESS

CONCEPT & STAGES IN PROMOTION

CONCEPT It implies the discovery of business idea, its investigation and assembling of necessary resources to set up a business as a profitable concern.

It is a term of business and not of Law

STAGES IN PROMOTION

DISCOVERY OF BUSINESS IDEA

INVESTIGATION

ASSEMBLING

FINANCING

1. DISCOVERY OF BUSINES IDEA

Conception of business opportunity relating to starting of a new business or taking over of an existing undertaking

Preliminary analysis is done to ensure that the idea deserves time and cost of detailed investigation(relating to feasibility and economic viability of the product concept)

2. DETAILED INVESTIGATION

To establish the soundness of the proposition in terms of technical feasibility & commercial viability.

To ensure that the estimated income will be sufficient to meet the estimated expenses and would yield sufficient returns to investors

It involves study of market demand, availability & cost of raw materials, machineries, labor, capital, land, probable selling price, degree of competition, mkt size, consumer behavior, current economic scenario, profits, etc.

Data so collected thru’ detailed investigation are presented in the form of Project-Report

The report helps in procuring licences and finance from Government agencies and financial institutions respectively

3. ASSEMBLING

Making contracts for the purchase of materials, building, machineries, tools, capital, raw-materials, etc

Selecting factory site, deciding about types & capacity of plant & machineries, acquiring patent rights, etc

Deciding about size & layout of plant and office

Persuading other persons to join hands

Procurement of required staff & executives

4. FINANCING OF PROPOSITION

Financial plans are prepared with respect to Capitalisation, Capital Structure, Time and Method of Capital Issue

Agreement with Underwriters, Stock- Brokers, Bankers, Special Financial- Institutions

A Joint stock Company may be promoted inany of the following two ways:-

by converting an existing partnership or proprietorship firm into a Joint stock – Company OR

by setting up a New Company altogether

PROMOTERS

A Promoter is one who conceives a business opportunity, assembles resources and takes the necessary steps to bring an enterprise into existence

ROLE OF PROMOTERS

Conceiving an idea of business opportunity in the form of Joint stock Company

Making preliminary investigation

Conducting detailed investigations to ensure project feasibility and economic viability

Bringing together various persons who agree to associate themselves in the business

Preparing various documents and getting the company incorporated

Entering into contracts relating to purchase of various assets, acquiring rights and hiring employees

Raising the necessary capital and launching the enterprise as a going concern

QUALITIES OF A PROMOTER

Initiative

Resourcefulness

Fertile Imagination

Foresightedness

Organising ability

Wide Knowledge

Dynamic Outlook

Self-Confidence

Salesmanship

Integrity of Character

TYPES OF PROMOTERS1. PROFESSIONAL

These promoters are specialised agencies and promotion is their whole time occupation.

They promote business enterprises and hand over the management of such enterprises to their owners or shareholders.

ACCIDENTAL Promotion is not their whole time job.

They promote their own enterprises as entrepreneurs.

They own and manage the enterprises promoted by them.

In our country, most of the business enterprises are promoted by such promoters.

FINANCIAL

Financial / Investment promoters float new enterprises during favourable conditions in the securities market.

They are interested in making gains from favourable investment climate rather than in the commercial success of the firm.

TECHNICAL These promoters promote new enterprises on the basis of their specialised knowledge and training in technical fields.

They charge fees for their services.

Consultants and engineers may promote enterprises to commercial use of their inventions.

SPECIALISED INSTITUTIONS

Specialised financial institutions like IDBI, IFCI, NIDC, NABARD, etc., provide technical managerial and financial assistance for the promotion of new enterprises.

Many of them have set up merchant banking division to provide services for launching new enterprises.

GOVERNMENT

Since Independence, the Government of India has been promoting several enterprises in diverse fields of economic activity ranging from foreign trade to machine tools and heavy electricals.

LEGAL STATUS OF A PROMOTER

Since a company does not come into existence, during the preliminary stage, a promoter cannot be called an agent or trustee of the company.

A promoter stands in Fiduciary Relationship with the company he is promoting. A relationship involving a confidence and trust.

The relationship of good faith requires the promoter to act honestly, sincerely and in the best interests of the company.

He should not misuse his position for personal gain.