Meaning and definition of promotion and the various stages of company promotion.
The process of conceiving an idea of starting a company and developing it into a concrete reality through incorporation is called promotion. It is the primary stage of formation and refers to the sum total of activities of all those who participate in the building of the enterprise up to the organisation of the company and completion of the plan to exploit the ideas.
According to Heney "the process of organizing and planning the finances of a business enterprise under the corporate form is called promotion. The person who undertakes the responsibility of bringing a company into existence is called a promoter. The promoter may be a single individual or group of individuals. The promoter conceive the idea of for incorporation of a company. The promotion work may be undertaken for starting a new business or expansion of an existing business unit. Promotion involves the following steps:
Discovery of idea:
The idea of starting the business enterprise is conceived by the promoter. The idea conceived should be applicable and feasible. At this stage, the promoter makes a rough estimate of probable incomes and expenditures of the business unit to be started. At the time of discovering the idea of starting the business, he makes an assessment about business risks, financial risks, investment risks, technical risks and commercial risks of the venture. This stage of promotion is primarily meant for thinking of an idea to start a company.
Preliminary investigation constitute the second important stage of company promotion. At this stage the soundness of the business is studied by the promoter. The soundness of the venture is studied by ascertaining the hidden weakness of the plan and also finding whether the venture is suitable for the consumer or not. The promoter makes a rough estimate about the cost of the project, estimated sales and estimated income resulting from the venture. The viability and profitability of the project is accounted for while making preliminary investigation at promotion stage.
The first and second stage of promotion has given a wide range of encouragement to the promoter and he got inspired at this stage. After preliminary investigation, the promoter goes for detailed investigation of his ideas with the help of different experts like engineer, chemist, financial experts and market analysis experts. Detailed investigation gives a good picture regarding the soundness of the project because at this stage the promoter is in a better position to know the capital requirement, place of location, size of the unit, demand for the product in the market and the probable prices of the product. The knowledge about the various branches are obtained from the experts.
When all the parameters of starting a company are found favorable at detailed investigation stage, the promoter goes for giving a concrete shape to the business. At detailed investigation stage, the promoter is satisfied regarding the practicability and profitability of the proposed venture. After being satisfied he proceeds for the next stage called assembling which means getting the support and consent of some other persons to act as directors or founders arranging suitable site for the company and arrangement for patents. At this stage all the steps for setting up a company is accounted for. The promoter also enter into contract with the government and other agencies for necessary clearance and license of the business.
Financing the proposition:
Finance is the life blood of each and every business unit. In financing stage the promoter approaches bankers, financing institutions, underwriters, prospective investors and creditors to help in financing the proposition. The promoter also prepares prospectus which is written invitation to the public to subscribe for the paid-up capital. Promoter also takes necessary steps for incorporating a company and getting certificate of commencement. For incorporating a company and getting certificate of commencement a lot of legal formalities are maintained and he has to comply for these legal formalities.