Q.Explain the steps taken by promoters in the promotion of a company.

The main steps promoters take are:

• Identification of a business opportunity and analysing its potential.
• Feasibility studies — technical, financial and economic — to check whether the idea can be profitably pursued; the company is launched only on positive results.
• Name approval — applying to the Registrar with three names in order of priority.
• Fixing signatories to the Memorandum — usually the first directors, whose consent and qualification-share undertaking are obtained.
• Appointment of professionals such as merchant bankers and auditors.
• Preparation of necessary documents — chiefly the Memorandum, Articles and consent of directors.

After conceiving a business idea, the promoters carry out the following steps to promote the company:

• (i) Identification of business opportunity: the promoter's first task is to spot a business opportunity — a new product or service, a new channel to make a product available, or any other opening with investment potential — and then analyse it for its potential.
• (ii) Feasibility studies: because not every idea can be turned profitably into a real project, promoters undertake detailed feasibility studies with help from specialists such as engineers and chartered accountants:
  • Technical feasibility: whether the idea can actually be executed, given the availability of raw materials and technology.
  • Financial feasibility: whether the required funds can be arranged; if the outlay is too large to arrange, the project is dropped.
  • Economic feasibility: whether the project is likely to be profitable; a technically and financially sound project may still be abandoned if it cannot earn a reasonable profit.
  • The company is launched only when these investigations give positive results.
• (iii) Name approval: the promoters select a name and apply to the Registrar of Companies of the state where the registered office will be situated. Because the preferred name may clash with an existing name or be misleading, three names in order of priority are submitted so an acceptable one can be approved.
• (iv) Fixing up signatories to the Memorandum of Association: the promoters decide who will sign the Memorandum. These signatories are usually the first directors; their written consent to act as directors and to take up qualification shares is obtained.
• (v) Appointment of professionals: professionals such as merchant bankers and auditors are appointed to help prepare the documents to be submitted to the Registrar.
• (vi) Preparation of necessary documents: the promoter prepares the legal documents that must be submitted for registration — chiefly the Memorandum of Association, Articles of Association and consent of directors.