Q. 2

Explain the steps taken by promoters in the promotion of a company.

Answer :

The steps taken by promoters in the promotion of a company are as follows:

(i) Identification of business opportunity: The first and foremost activity of a promoter is to identify a business opportunity


(ii) Feasibility studies: The promoters undertake detailed feasibility studies to investigate all aspects of the business they intend to start. Depending upon the nature of the project, the following feasibility studies may be undertaken, with the help of the specialists like engineers, chartered accountants etc., to examine whether the perceived business opportunity can be profitably exploited.


(a) Technical feasibility: Sometimes an idea may be good but technically not possible to execute. It may be so because the required raw material or technology is not easily available. For example, if the raw material is not produced in the country and it cannot be imported because of poor political relations then the project would be technically unfeasible until arrangements are made to make it available from alternative sources.


(b) Financial feasibility: Every business activity requires funds. The promoters have to estimate the fund requirements for the identified business opportunity. If the required outlay for the project is so large that it cannot easily be arranged within the available means, the project has to be given up


(c) Economic feasibility: Sometimes it so happens that a project is technically viable and financially feasible but the chance of it being profitable is very little. Promoters then take the help of experts to conduct these studies.


When these investigations show positive results, then the promoters may decide to actually launch a company and move to further steps such as promoters have to select a name for the company and submit, an application to the registrar of companies of the state in which the registered office of the company is to be situated After that Promoters have to decide about the members who will be signing the Memorandum of Association of the proposed company. The promoters assist certain professionals such as mercantile bankers, auditors etc in the preparation of necessary documents which are required to be with the Registrar of Companies. The promoter takes up various steps to prepare certain legal documents, which have to be submitted under the law, to the Registrar of the Companies for getting the company registered. These documents are Memorandum of Association, Articles of Association and Consent of Directors.


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