Four Stages of a Business Idea to be undertaken by Promoters

Before a company (Co) comes into existence, the new business idea undergoes 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 these stages. Some start operating only after undergoing two stages as the case with a private company and public company. These two companies don’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 new business idea that the company is to carry. It may be an already existing line of business or a totally new one. Whichever the case, promoters must ensure that it’s worthy venturing. Here are the four stages of promotion of a company undertaken by the promoters:

Fist Stage

In the first stage, they discover an idea. It may be a new one or from an existing line of business. The promoters are the ones who discover it and ensure that the new business idea is worth.

Second Stage

In the second stage, the promoters investigate the details regarding the new business idea by first finding out its profitability and economic viability. They project all the requirements regarding the resources to run the company. In this stage, they may involve experts from different fields such as accounting, financing etc.

Third Stage

In the third stage, the promoters assemble and make arrangements of getting all the requirements they had decided on the second stage. In this stage, preliminary contracts are taken.  The promoters make the necessary arrangements of getting the licenses and permits from responsible government departments.

Fourth Stage

In the fourth stage, promoters decide the required amount of finance and the securities to be issued. These securities raise the fixed capital required. 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 the banks and other financial institutions in order to acquire loans.