Introduction to Need of Promotion
A Company when formed requires a head start in regard to finance and resources, in this view the Company Needs to be promoted. So, the entire process involved in this method of Promotion by the promoters of the Company is known as ‘Promotion of a Company’.
In simple words, Promotion means spreading information about any goods or services offered by a Company.
In terms of marketing, the term means making people aware of any particular brand, product, or service.
General Promotion includes,
Advertising
Publicity and public relations
However, Promotion for marketing includes,
Sales Promotion- It is the process of increasing the sales of products. It includes advertising, campaigning, etc.
Personal Selling- In this selling, a salesperson persuades customers to purchase a product.
Non-personal Selling- It includes marketing and selling strategies like advertising, direct selling, product placement, guerilla marketing (a technique in which products are sold without meeting customers).
Direct Selling- In direct selling, a distributor can earn money either by selling the products directly to the customers (single-level marketing ) or by multi-level marketing in which a seller earns money both by direct selling and appointing new direct sellers and commission on their sales.
Product Placements- This strategy refers to providing a space in a television program or a movie so the information of the product can reach a large audience at a single time.
Also, Promotion can happen when a marketing Company provides coupons and discounts on the products to create brand awareness.
Promotion is an integral part of a Company that differentiates a business from its competitors. Every business needs to promote its products to create a brand identity and reach its target sales.
Students who want to become an entrepreneur in the future and want to establish their companies are required to grasp this content to know the details about the formation of a Company, as Promotion is a crucial step in the formation and structuring of a Company Moreover, an extra detailed study is also required to be invested here.
Idea Behind the Formation of Company
With the entire process by which a company is brought into existence, the birth of a Company and determining the purpose of its Formation is too studied vividly, and the persons who conceive the Idea of the Formation of the Company and invest their initial funds in the growth of the Company are known as the promoters for that particular Company.
The promoters enter into the preliminary contracts with legal personalities and make arrangements, advertisement and the circulation of the Company’s prospectus is also done at the expenses and the efforts of the promoters.
Define Promoters of a Company
Promoter is a person who conceives or catches the idea, studies the prospects of the business critically and analytically, chalks out a scheme for the organization, brings together the required workforce, materials, machinery, finance, and managerial ability, and then launches the enterprise.
Promoter is a firm or a person who does the preliminary work which is incidental to the formation of a Company, incidental works include – promotion, incorporation, floatation also the Promoters encourage the investors to invest their funds in the Company at the time of their promotion.
Role of a Promoter
The role of a Promoter can be performed by an investment banker, underwriter, or even by a stock Promoter, who can perform the role in full or partially.
Promoters owe a duty of utmost good faith, so as to not mislead the potential investors.
They disclose all material facts about the Company's business.
Promoters have a fiduciary relationship with the Company and the investors or the shareholders of the Company, they must not hold any type of conflicts in decisions and.
Any gain they acquire from the property of the Company must be submitted to the Company only.
The Promoters are cautious and abandon themselves from the unfair advantage of their position as a Promoter.
A Promoter can be a shareholder in a particular Company. If the Promoter is the only shareholder, the Company may have to disclose such information prior to selling shares in compliance with the Securities and Exchange Rules
Function of Promoter
The function of a Promoter can be that of an investor as well as of a shareholder and also of the sole task of a Promoter who personally put the Company in action. The functions of the Promoter are listed below:
Promotion of an Idea:
The Promoter conceives the idea of forming the Company. This is the initial step towards the formation of a Company.
Detailed Investigation:
The Promoter, after generating an idea, has to make a thorough and detailed investigation of the prospects and the capability of the business which is to be done with the sources of supply, nature of demand, the extent of competition, and the capital requirements.
Verification:
The Promoter also is required to verify the reports made by the experts are free from bias.
Assembling:
After verifying the idea, the Promoter needs to launch the projected Company.
Financing the Proposition:
At this stage, the Promoter needs to plan about setting out the mode of getting the required finance, negotiate with the vendors, check the availability of loans, etc.
Presentation of the Proposition:
After making necessary arrangements and modes of raising the required finance, he needs to print the documents like the Memorandum and file with the registrar and then kick start their publication, all this has to be done in accordance with the provisions of the Companies Act.
Define Legal Consultants of a Company
Though legal consultants are not promoters ``technically”, they play a major role during business setup and promotion. A legal consultant is a person who gives professional and expert legal advice to a business or individual on a contractual basis. A legal consultant works with a law firm and is a part of a legal counsel team and gets hired by an enterprise to look after its legal matters. Usually, the CEO or Company leaders take legal suggestions from them before taking any step for the Company’s advantage.
Role of a Legal Consultant
A lawyer can be a legal consultant for any enterprise. He can work for a business either full-time or part-time. His roles are
Overseeing Contracts- Legal advisors look for all vendor and client contracts. These consultants help companies to know and understand law-related formalities. In terms of brand promotion, they help clients to know the risks, advantages, and some financial related issues associated with it.
Provide Cost-Effective Legal Suggestions- A legal consultant gives commercially sensible and cost-effective suggestions for the effective legal management of promotional contracts.
Drafting- A legal consultant is responsible for reviewing previous promotional contracts and drafting new contracts for their clients. They are well aware of the terms and conditions associated with different promotional contracts.
Damage claims- When the sentiments of a Company get hurt by its competitor during brand promotion, it can claim compensation for the same from the competitor. This involves a hectic legal procedure that is handled by a legal consultant of the Company. He drafts the necessary documents for the financial losses faced by the enterprise due to defamation.
Functions of a Legal Consultant
The functions of a legal consultant involve managing and operating the legal activities in a Company. He makes every legal process simple, so the business owner can focus on other perspectives such as finances, marketing, etc. Further, he assists enterprise owners to draft a promotional plan with minimum legal faults. His functions include,
Provide Legal Defense- Legal consultants defend the companies from legal proceedings. For example, if a competitor Company demands a claim for its defamation due to brand promotion, he stands against the prosecution and defends his client.
Legal Correspondence- These legal experts handle the legal communications with the promotion team in the case of marketing.
Resolving Disputes- Legal experts also solve disputes between two parties. They can solve these problems without making anyone go to court.
Promotion Stage of Company Formation
There is a defined stage to the promotion of Company’s formation, the stages include as hereunder:
Stage 1. Promotion Stage:
Promotion is the foremost stage in the formation of a Company. He performs aggregated activities to design and to bring an enterprise to operate as a business.
Stage 2. Incorporation:
This is a registration stage, where the registration of the Company brings it to existence. A Company is correctly constituted only when this is duly registered under the Act.
Stage 3. Capital Subscription Stage:
This ‘capital subscription stage’ and ‘commencement of business stage’ are only relevant in the case of a public company having a share capital. In this stage, necessary capital is to be acquired for the Company.
Stage 4. Commencement of Business Stage:
After receiving the certificate of incorporation, a private company can start its business, while a public Company can start its business after getting the ‘certificate of commencement of business.
FAQs on Company Promotion: Steps and Insights
1. What is meant by the promotion of a company as per the Companies Act, 2023?
The promotion of a company refers to the entire process of conceiving a business idea and taking the necessary steps to bring that company into existence as a legal entity. It is the first stage in the formation of a company and involves all the preliminary work, from idea generation to securing initial funds, before the company is officially registered (incorporated).
2. Who is a promoter and what is their primary role in a company's formation?
A promoter is the person or group of people who conceive the business idea and undertake the work required to form a company. Their primary role is to perform the preliminary duties essential for the company's establishment. This includes:
- Identifying a business opportunity.
- Conducting feasibility studies to assess viability.
- Deciding on the company's name and objectives.
- Appointing the first directors.
- Arranging for the preparation of key documents like the Memorandum of Association (MoA) and Articles of Association (AoA).
3. What are the key steps involved in the promotion stage of a company?
The promotion stage of a company involves a sequence of logical steps to transform a business idea into a concrete plan. The key steps are:
- Discovery of a Business Idea: The promoter first conceives a new business idea or identifies an opportunity.
- Detailed Investigation: The promoter conducts a thorough investigation into the idea's profitability, technical feasibility, and economic viability.
- Assembling Resources: Once convinced of the feasibility, the promoter assembles the necessary resources, such as negotiating with suppliers, identifying a location, and arranging for machinery.
- Financing the Proposition: The promoter finalises the financial plan, estimating capital requirements and the sources from which funds will be raised.
- Preparing Preliminary Documents: The promoter ensures key legal documents like the MoA and AoA are drafted in preparation for incorporation.
4. How does the 'promotion of a company' differ from 'product promotion' in business studies?
These two terms are fundamentally different. Promotion of a company is a legal and procedural concept referring to the initial stage of forming the company itself. It's about bringing the business into legal existence. In contrast, product promotion is a marketing activity that happens after the company is formed. It focuses on communicating with customers to increase sales and brand awareness through methods like advertising, public relations, and sales discounts.
5. What are the four stages of forming a company, and where does promotion fit in?
The formation of a company, as per the CBSE syllabus for the academic year 2025-26, is completed in four distinct stages. Promotion is the critical first step in this sequence. The four stages are:
- 1. Promotion Stage: This involves conceiving the business idea and doing all the groundwork.
- 2. Incorporation Stage: This is the registration stage where the company is officially registered with the Registrar of Companies and receives a Certificate of Incorporation.
- 3. Capital Subscription Stage: In this stage, a public company raises the necessary capital from the public by issuing shares.
- 4. Commencement of Business Stage: A public company must obtain a Certificate of Commencement of Business before it can legally start its operations.
6. Why are preliminary contracts made by promoters not automatically binding on the company after its incorporation?
Preliminary contracts, or pre-incorporation contracts, are not automatically binding because at the time they are signed, the company does not exist as a separate legal entity. A contract requires at least two legal persons, and since the company isn't yet formed, it cannot be a party to the contract. The promoter signs these contracts in a personal capacity. For the company to be bound by them, it must formally adopt or 'novate' the contracts after its incorporation.
7. What are the key fiduciary duties of a promoter towards the company they are forming?
A promoter stands in a fiduciary relationship with the company, meaning a relationship of utmost trust and good faith. Their key duties are:
- Not to make secret profits: Any profit made from transactions with the company must be fully disclosed and given to the company.
- To disclose all material facts: Promoters must reveal all relevant information and not conceal anything from the company and its future shareholders.
- To disclose any personal interest: If a promoter has a personal interest in any deal with the company, it must be fully disclosed to the board of directors.
- To act in the best interests of the company: All actions taken by the promoter must be for the benefit of the company they are creating.
8. Can professionals like lawyers or accountants be considered promoters of a company? Explain why or why not.
No, professionals like lawyers, accountants, or legal consultants who are engaged to provide their expert services for the formation of a company are generally not considered promoters. This is because they are acting in their professional capacity on behalf of the actual promoters. Their role is to provide advice and execute tasks for a fee, not to conceive the business idea or take the entrepreneurial risk associated with forming the company.
