Who is a Promoter ?

A person who develops

business ideas, assesses their
feasibility, obtains resources,
prepares essential documents,
and engages in other tasks
needed for commencing a
business is known as a
Promoter.
The first stage in a company’s formation is promotion. It involves
steps like identifying a business opportunity, evaluating its
prospects, and then following implementation in order to start a
company.
‘Promoter’ is defined as the following in Section 2(69) of the
Companies Act of 2013:

i.A person who is named as promoter in a prospectus

ii.A person who directly or indirectly has control over the
company’s affairs
iii.A person under whose advice, guidance, or instruction the
company’s board of directors of the company are used to act.
1. Identification of a Business Opportunity:

The formation of a company begins when the promoter

identifies a business opportunity or an idea. The idea could
be related to the establishment of a new business, the
expansion of an existing unit, or the merging of two business
units.
2. Feasibility Studies:

It may not be feasible or profitable for transforming all

potential business opportunities into real projects.
Therefore, in order to fully understand the intended
business, several factors are estimated before investing
money in the idea.
The following feasibility studies may be undertaken
depending on the project’s nature and with the help of
specialists like engineers, CAs, etc.
Technical Viability: Sometimes the business idea is feasible, but it may be
technically impossible to implement it. It can be because the necessary
technology, raw materials, and other inputs are not readily available.

Financial Feasibility: Every business activity needs funds. The project is said
to be financially unfeasible if the required funding is so large that it cannot be
arranged within the available resources.
For instance, a project to create townships can be very profitable, but if
funding cannot be arranged, the project lacks financial feasibility.

Economic Feasibility: A project can sometimes be very bad because it might

not be very profitable. Generally, businessmen prefer to stay with profitable
ideas.
3. Name Approval:

 The promoters have to select a name for the

company and get the approval of the Registrar of
Companies before using it.
 It must be confirmed that the name selected for
the company is unique and does not match the
name of another company.
4. Selecting Signatories to the Memorandum of Association:

 The promoters have to select the people who will sign the
proposed company’s Memorandum of Association. The
signatories of the memorandum are usually known as the First
Directors of the Company.
 Signatories must provide their written approval before working
as directors or purchasing qualifying shares.
 In the case of a public company, the Memorandum must be
signed by a minimum of seven persons and by two persons in
the case of a private company
5. Appointment of Specialists:

The promoters appoint professionals such

as merchant bankers, auditors, and others
to assist in the preparation and submission
of relevant documents to the Registrar of
Companies.
6. Preparation of Necessary Documents:

The promoter takes action to prepare the legal

documents that must be presented to the
Registrar for getting the company to be
registered, which includes the Memorandum of
Association, the Articles of Association, the
Consent of Directors, etc.
The Memorandum of Association (MoA) is a legal document that lays out the
framework for the establishment of a company.

The MoA includes the company's name, registered office address, nature of
business, authorized share capital, and the names and signatures of the
subscribers who are the initial shareholders.
It also outlines the company's objectives, powers, and limitations, which the
company must operate within.
1. Name Clause:

This clause specifies the name of the company. The

name of the company should not be identical to any
existing company.
Also, if it is a private company, then it should have the
word ‘Private Limited’ at the end. In the case of a public
company, then it should add the word “Limited” at the
end of its name.
2. Registered Office Clause:

This clause specifies the name of the State in which the

registered office of the company is situated. It helps to
determine the jurisdiction of the Registrar of Companies.
The company must inform the registered
office location and address to the Registrar of Companies
within 30 days from the date of incorporation or
commencement of the company.
The registered office is the official office of the company.
All communications, legal notices and documents will be
sent to the registered office address.
3. Object Clause:

This clause states the objective with which the company is formed. The
company must carry out its business activities to fulfill the objectives
mentioned in this clause

The objectives can be further divided into the following 3 subcategories:

 Main Objective: It states the main business of the company
 Incidental Objective: These are the objects ancillary to the attainment of
main objects of the company
 Other objectives: Any other objects which the company may pursue
and are not covered in above (a) and (b)
4. Liability Clause :

It states the nature of liability of the members of the company in

case of any loss or debts incurred by it.

 In the case of an unlimited company, the liability of the

members is unlimited.
 Whereas, in the case of a company limited by shares, the
liability of the members is restricted by the amount unpaid on
their share.
 For a company limited by guarantee, the liability of the
members is restricted by the amount each member has agreed
to contribute.
5. Capital Clause:

This clause details the maximum capital a company can

raise, also called the authorized/nominal capital of the
company.
It provides the maximum amount of capital that can be
issued to the company shareholders. It also explains the
division of such capital amount into the number of shares of
a fixed amount each. It should also specify the type of
shares the company is authorised to issue, i.e. equity
shares, preference shares, or debentures.
C.CONSENT OF PROPOSED DIRECTORS

Apart from the MOA and AOA, written

consent of each person named as a
director is required confirming that
they agree to act in that capacity and
undertake to buy and pay for
qualification shares.
d.AGREEMENT

The agreement, if any, which the

company proposes to enter with
any individual for appointment as
its managing director /manager.
e.Statutory Declaration

A declaration stating that all the legal requirements

about registration have been complied with is to
be submitted to the Registrar with the rest
documents (i.e.,a,b,c, & d ).
Duly signed by an advocate/CA/CS and by a
director/manager/secretary
f.Receipt of payment of fee

Along with the above-mentioned documents,

necessary fees have to be paid for the registration
of the company.
The following steps are required for raising
funds from the public

SEBI Approval:
Securities and Exchange Board of India which is
the regulatory authority in our country has issued
guidelines for the discloser of information and
investor protection. A company inviting funds from
the general public must follow SEBI guidelines of
discloser of all the adequate information.
Filing of Prospectus:
Prospectus is a document that includes any
notice, circular, advertisement, or other
documents inviting offers from the public for
the subscription. It has to be filed with the
Registrar of Companies.
Appointment of Bankers, Brokers, and
Underwriters
Minimum Subscription:

If Applications received for the shares

are for an amount less than 90 percent of
the issue size, the allotment cannot be
made.
Application to Stock Exchange:

Application is to be made to at least one

stock exchange for permission to deal its
shares or debenture.
Allotment of Shares
4. Commencement of Business