Four Stages Of A Business Idea To Be Undertaken By Promoters
Mar 2, 2010 Business Ideas
By: Joshua
Before a company [Co] comes into existence, the business idea will undergo some stages and procedures. These initial stages of formation of any company are termed as promotion. There are people who are involved in executing these stages before a company can commence its operations. These persons are called the promoters.
Note that not all types of companies undergo all the stages. Some will only start operating after undergoing two stages as the case with a private company and public company that doesn’t have a share capital.
A public Co limited with a share capital has to undergo all the four stages before it’s incorporated to commence its specific purpose stated in the memorandum of association. Gw. Gerstenburge defines promotion of a company as “the discovery of business opportunity and the subsequent organization of funds, property and managerial ability into a business concern for the purpose of making profits there from”
So, this definition is all about persuading a good number of people to come together with the aim of attaining their common objective through the company form of organization. The promoters are the ones who discover the business idea that the company is to carry. It may be an already existing line of business or a totally new one. But the promoters must ensure that it’s worthy venturing in.
Here are the four stages of promotion of a company undertaken by the promoters:
In the first stage, they discover an idea that may be a new one or from an existing line of business. The promoters are the ones who discover it and ensure that it is worth.
In the second stage, the promoters will investigate the details regarding the idea by first finding out its profitability and economic viability. They will project all the requirements regarding the resources to run the company. In this stage, they may involve experts of different areas such as accounts, finance etc.
In the third stage, the promoters will assemble and make arrangements of getting all the requirements they had decided on the second stage if only they found that the idea is worth undertaking. In this stage, preliminary contracts are taken. The promoters will make the necessary arrangements of getting the licenses and permits from the responsible government departments that issue them.
In the fourth stage, they will decide the required amount of finance and the securities to be issued. These securities that will be issued to the public will raise the fixed capital required. They will enter into contracts with underwriters for the subscription of shares or debentures so that to be sure of the required actual capital. The prospectors will be prepared by the promoters which they will issue to the public in order to raise the capital. They will also make the necessary arrangements with the banks and other financial institutions that will issue them with loans.
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