Role of Promoters in Company Formation or incorpor

Promoter is a person, company, or a firm to bring a company into existence. It can be the person who can act with reference to the formation of a company or in aid of its organization. Promoter conceives an idea for setting-up a particular business at a given place and performs various formalities and functions which are required for starting a company.

Promoter is actually a term associated with the person who starts a business. It has various privileges and benefits associated with his status as the person who kick-started the operations. It logically means the person who started the company.

Characteristics of the Promoter

  • Promoter conceives an idea for the setting-up a business.
  • Promoter makes preliminary investigations and ensures about the future prospects of the business.
  • In promotion, various people are brought together who agree to associate with him and share the business responsibilities.

Promoter has not been defined in any company law. But, it finds mention in a number of statutes  

  • Any person who is in control of the target company
  • Any person named as promoter in any offer document of the target company
  • Any shareholding pattern filed by the target company with the stock exchanges pursuant to the listing agreement

There are certain kinds of Promoters. Following are the types:

Professional Promoters: There are specialized people for a promotion of a company. Companies are handed to shareholder in starting. In many countries, promoters have important roles to play and help the business community.  India lacks in professional promoters.   

Occasional promoters take interest in floating some companies. They are not only for promotional work but they are on a regular basis ie. take up some early promotion and then go for an earlier profession.  

Financial promoters may take up the promotion of a company. They generally when financial environment is favourable at that time.

Managing agents as promoters-Duties of a managing agent are to promote new company. People may float new companies and get their managing agents.

 Duties of a Promoter:

  • Promoter should not make secret profits out of the dealings of the company.
  • Promoter must deposit with the company all money received on its behalf.
  • Promoter exercise due diligence and care while performing the work of a promoter.
  • Promoter will be personally responsible for all the preliminary contracts till all these are approved by the company.
  • Promote compensate any person who made investments in the company on the basis of untrue statements made by the promoter.

Formation of a Company involves the following stages

  • Promotion
  • Incorporation
  • Capital Subscription Stage
  • Commencement of Business

Stages of promotion

Identification of Business Opportunity is the first stage in promotion of a business.  It visualizes the opportunities for a particular type of business and it can be run profitability. The idea may be to exploit a new area of natural resources or a venture in the existing line of business. Promoters develops the ideas with the help of technical experts of that field

Detailed Investigation is the second stage. There are various factors relating to the business are studied from a practical point of view. The demand for the product is estimated and the likely business share is determined. After determining the prospective demand, the promoter thinks of arranging finances, labor, raw materials, power, etc. The cost structure of the product is analyzed to find out profitability from the venture. An expert opinion is sought upon the viability of the project.

Signatories to Memorandum are names of People to be the signatories to the memorandum of association. Usually, the first signatories to the memorandum become the first directors of the company. The written consent of the persons to act as directors is taken and they are asked to take qualifying shares of the company.

Appointment of Professionals is a stage of raising funds and deciding about various contracts. Promoter appoints the brokers and underwriters to ensure the availability of capital by sale of company’s securities. They also appoint solicitors to deal with legal matters of the company.

 Preparing necessary Documents is a step to prepare legal documents of the company which have to be submitted to the Registrar of Companies at the time of incorporation. The documents which are required to be prepared include MOA, AOA, Prospectus, etc.

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