Promotion Of Business Submitted To: Mrs. Kirti Submitted By:Paramjit SinghHunjanB.Com IB Roll No: 148
INTRODUCTION The promotion of every Business requires a process to be followed. A Number of Formalities have to be Completed before a unit can come into existence.The length of a process and the number of formalities vary with the type of org and scale of operations. It is easy to start Sole Trade and Partnership concerns but a joint Stock Company requires a lengthy process.
Definitions • In a Layman Language Promotion refers to telling the People about your Product and your Organization. It Points toward Letting the People Know About Your Product so that they came to know about your product. • LH Haney- Promotion may be Defined as the process of organizing and planning the finance of a business enterprise under the Corporate Firm
CW Gernstern – Promotion may be defined as the discovery of business opportunities, and the subsequent organization of funds, property and managerial ability into a business concern for the purpose of making profits therefrom. • Guthmann and Dougal – Promotions starts with the conception of the Idea from which the Business is to evolve and continue down to the point at which the business is fully ready to begin operations as a going concern
Stages of Promotion There are Four Stages of Promotion • Discovery of an idea • Detailed investigation • Assembling the Requirement • Financing Proposition
Discovery of an Idea The First Stage in the Company Promotion is the Conception of a New Idea. A Person Visualizes that there are opportunities for a Particular type of Business and it can be profitably run . The Idea may be to exploit a new area of natural resources or more profitable ventures in an existing line of business He develops this idea with the Help of technical exports in that field.
Detailed Investigation At the Second Stage various factors relating to that business are studied from a practical point of view . The Promoters will estimate total demand for the product. There may be certain concerns already in that type of business and so he will determine his share of demand. After Determining the Prospective demand for Goods he Will think of Arranging Finances for the Venture.
Assembling the Requirement After making sure that the proposition is practical and profitable ,the Promoter proceed o assemble the requirements. He Persuades some more persons to join hands with him by becoming directors or founder members. If he has invented something new, he should get it Registered in his name. he may also acquire some patent rights. The promoter selects the factory site, decides about plant and machinery and contact suppliers Raw Materials
Financing the Proposition The promoters decide about the capital structure of the company. The requirement of finances are estimated first. Then the sources from which this money will come are determined. How much share capital will be issued, the type of shares to be issued, and the nature of loans, whether debentures or borrowings from financial institutions for a longer period are finalized
PROMOTERS A Promoter conceives an idea for setting up a particular business at a given place and performs various formalities required for starting a company. A Promoter may be a individual, fir, association of persons or a company. The persons who Assist the promoter in completing various legal formalities are professional people like Counsels, Solicitors, Accountants etc and not promoters.
Definition of Promoters • Justice CJ Cockburn: A Promoter is one who undertakes to form a company with reference to a given object and sets going and takes the necessary steps to accomplish that purpose. • Arthur Dewing: A Promoter is the person conscious of the possibility of transforming an idea into a Business capable of yielding a profit; who brings together various persons concerned and who finally superintends the various steps necessary to bring the new business into Existence.
Sir Francis Palmer: A Person who originates the scheme of the promotion of a company has the memorandum and articles prepared, executed and registered and finds the first directors, settles the terms, preliminary contracts, and prospectus if any, and make arrangements for advertising and circulating the prospectus and raising the capital
Characteristics of Promoter • A Promoter conceives an idea for the setting up a business • He makes preliminary investigations and ensure about the future prospects of business • He brings together various persons who agree to associate with him and share the business responsibilities • He Prepares various documents and gets the company incorporated • He raises the required finances and gets the company going
Kinds of Promoter • Professional Promoters • Occasional Promoters • Financial Promoters • Managing agents as Promoters
Aspects of Promoter Promotional Aspects may be Divided into Two Categories: • Procedural Decisions relating to planning and organizing of Business • Legal Aspects or Legal Formalities involved in Promotion
Procedural Aspects(Entrepreneurial Decisions) • Product Analysis • Marketing Product • Financial Planning • Size of a Business Unit • Internal Organisation • Location of the Unit • Plan Layout • Launching an Enterprise
Legal Aspects of Promotion(Formation of Company) Legal Aspects of promotion deals with the formalities required for setting up a Business. The Formalities are linked to the form of org of the Enterprise and its scale of Operations. A Joint Stock Company Requires a Number of Legal Formalities before it can be Setup. It has to deal with the following aspects • Registration or Incorporation • Capital Subscription • Commencement of Business
Important Documents Issued by a Company • Memorandum of Association (MOA) • Articles of Association (AOA) • Prospectus
Memorandum of Association (MOA) The Memorandum of Association is the Constitution of the Company and provides the foundation on which its structure is built. It’s the principal document of the company and no company can be registered without the Memorandum of Association. It defines the Scope of company’s activities as well as it relation with the outside world
Definitions of MOA • Charlesworth: The MOA is the company’s character and defined the limitations of its powers. Its purpose is to enable shareholders, creditors and those who deal with the company to know what is permitted range of enterprise. It is the Document which informs all persons dealing with the company what the company is formed to do. What capital it has to do with and what its nationality is. It regulates the company’s external affairs, while the AOA regulates its Internal Affairs.
Lord Macmillan: The purpose of the Memorandum is to Enable the Shareholders, Creditors and those who deal with the company to know what is permitted range of enterprise. • Section 2(28) of the Company’s Act defines a Memorandum as the MOA of a Company as originally framed or as altered from time to time in pursuance of any previous company laws or of this act.
Importance of MOA • Memorandum defines the limitations on the Powers of Company established under the Act • The whole structure of the company is built upon Memorandum • It explains the scope of activity of the company. The investors know where there money will be spent and outsider also know the nature of activities the company is authorized to take up • It is a basic document of the company with regard to its constitution • It is charter of the company which sets out its written goals
Article of Association (AOA) The rules and regulations which are framed for the internal management of the company are set out in a document named AOA. The articles are framed to help the company in achieving its objectives set out in MOA. It is a supplementary Document to the Memorandum. According to Section 2(2) of Companies Act, ”AOA of the Company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act. “
Nature of Articles • Articles of Association are subordinate to Memorandum of Association. • The Articles are controlled by memorandum. • Articles help in achieving the objectives laid down in the memorandum. • Articles are only internal regulations over which members exercise control. • Articles lay down the regulation for governance of the company.
Contents of AOA • The Amount of Share capital issued, different types of share, calls on share, forfeiture of shares, etc. • Power to alter as well as reduce Share Capital. • The appointment of directors, powers, duties, and their remuneration. • The appointment of manager, managing Director etc. • The procedure for holding and conducting of various meetings. • Matters relating to maintaining of accounts, declaration of dividends and keeping of reserves etc. • Procedure of vending up of the company.
Prospectus A Prospectus means any document described or issued as prospectus and includes any notice, circular, advertisement or other documents inviting deposits from public or inviting offers from the public for the subscription or purchase of any shares in or any debentures of a body corporate.
Essentials of Prospectus • There must be an invitation offering to the public. • The invitation must be made on behalf of the company or intended company. • The invitation must be to subscribe or purchase. • The invitation must relate to shares or debentures.
Contents of Prospectus • Name and Full Address of Company • Full particulars about the signatories to the MOA and the number of shares taken up by them. • The number and classes of shares. • Name, address, and occupation of members of board of directors. • The minimum subscription fixed by promoters after taking into all financial requirements in the beginning.
If the company acquires any property from vendors, their full particulars are to be given. • The full address of underwriters, if any, and the opinion of the directors that the underwriters have sufficient resources to meet their obligations. • The time of opening of the subscription list. • The nature and extent of interest of every promoter in the promotion of the company. • The amount payable on application, allotment and calls.
The particulars of preferential treatment given to any persons for subscribing shares or debentures. • Particulars about reserves and surpluses. • The amount of preliminary expenses. • The name and address of the auditor. • Particulars regarding voting rights at the meeting of the company. • A report by the auditors regarding the profits and losses of the company.