Before a company is born, a new business idea must go through some stages and procedures. The initial stages of forming a business are called promotion. There are people who are involved in executing these stages before a business can start operations. These people are called promoters.
Keep in mind that not all types of businesses go through all of these stages. Some companies start operating only after going through two stages, such as a private company and a public company. These two companies do not have share capital. A public company limited by share capital has to go through all four stages before it is incorporated to begin its specific purpose stated in the articles of incorporation. Gw. Gerstenburge defines business promotion as “The discovery of business opportunities and the subsequent organization of funds, ownership, and managerial capacity into a business enterprise for the purpose of profiting therefrom.”
Thus, the promoters have the duty to persuade a good number of people to unite in order to achieve their common objective through the form of organization of the company. The promoters are the ones who discover the new business idea that the company will carry during its existence. The business idea can be an existing line of business or an entirely new one. Whatever the case, the promoters of a business must ensure that the business idea is worth venturing into. These are the four stages of promoting a company carried out by promoters:
fist stage
In the first stage, promoters discover an idea. It can be a new one or from an existing line of business. Promoters are the ones who discover a business idea and make sure the new business idea is worth investing in.
Second stage
In the second stage, the promoters investigate the details of the new business idea, first finding out its profitability and economic viability. They project all the requirements in terms of resources for the operation of the company. At this stage, they can involve experts from different fields like accounting, finance, etc.
third stage
In the third stage, the promoters meet and arrange to get all the requirements that they had decided on in the second stage. Preliminary contracts are taken at this stage. The promoters make the necessary arrangements to obtain the licenses and permits from the responsible government departments.
Fourth Stage
In the fourth stage, the promoters decide the required amount of financing and the securities to be issued by the public company limited by a share capital. These values raise the required fixed capital. They enter into contracts with underwriters for the subscription of shares or debentures. The promoters prepare the prospector which is issued to the public in order to raise the capital. They also make the necessary arrangements with banks and other financial institutions to acquire loans.