What is a Promoter? Functions, Rights, Types

What is a Promoter?

A promoter is a person who initiates the setting up of a company and controls its working. A promoter makes preliminary investigation and ensures about the future prospectus of the business. This stage includes all the processes starting from the inception of an idea to the completion of the project.

It includes following steps:

• Identification of business opportunity
• Detailed investigation
• Signatories to Memorandum
• Preparing necessary documents.

Role and Importance of Promoter

A promoter can be defined as a person or group of persons who conceive the idea of setting up a new business, assess its feasibility and take necessary steps to arrange the basic requirements and establish a business unit say, a Company and put into operation.

Promoter plays a pivotal role in the promotion of a company. He conceives the idea of business enterprise, analyses its prospects, works out a tentative scheme of organization, brings together the requisite men, material, machines and money and starts the enterprise.

Functions of a Promoter

The main functions of a promoter are as follow:

• Planning and assessing the possibilities.
  
  
• Discovering of idea for establishing a company.
  
  
• Make detailed investigation about the demand for the product, availability of power, labour, raw material, etc.
  
  
• Find out suitable persons who are willing to act as first directors of the company and are ready to sign on the Memorandum of Association.
  
  
• Selecting of bank, legal advisor, auditors and underwriters for the company.
  
  
• To prepare essential documents of the company.
  
  
• To prepare draft of the Memorandum of Association, Articles of Association, Prospectus of the company and get them printed.
  
• To submit all the documents, required for incorporation with the Registrar.
  
  
• To arrange for advertisement of prospectus of the company in the newspapers.
  
  
• To meet all the preliminary expenses for floating of a company.
  
  
• To make contracts with vendors, underwriters and managing director of the company.
  
  
• To raise the required finances and get the company going.
  
  
• To make proper arrangement for the office of the company.

Rights of Promoters

The rights of promoters are as follows:

• Right to receive preliminary-expenses.
  
  
• Right to receive remuneration for their services.
  
  
• Right to receive the proportionate money from co-promoters.

Liability of the Promoters

The liabilities of promoters are as follows:

• To disclose the liability and pay the secret profits if promoters have earned.
  
• Liability is up to the completion of contracts.
  
  
• Liability on statutory mistakes or fraud in the prospectus.
  
  
• His property becomes liable for payment even after his death.

Types of Promoters

The task of business promotion may be carried out by an individual, a firm, a body corporate or a banker. Based on the nature of their operation the promoters can be classified into the following categories:

• Professional Promoters: These promoters are specialists in promoting new business ventures. They do it on a whole time basis as their occupation or profession. They initiate all the steps in establishing new enterprises and find out the persons who can finance it. After completing all the formalities they pass on the management to their owners or shareholders and then move to another new venture.
  
  
• Financial Promoters: These promoters float companies only during favorable conditions in the securing market. They have the financial capacity and look forward to opportunities for new investment.
  
  
• Technical Promoters: These promoters are technical experts in different fields. They make use of their specialized knowledge, experience and training in promoting new business. They generally charge fees for their services.
  
  
• Entrepreneurial Promoters: They are the people who conceive new ideas of business, take necessary steps to set up the business unit to give it a shape and ultimately control and manage it. Most promoters in India (like Tata, Birla and Ambanies) fall in this category.
  
  
• Specialized Institutions: There are certain financial institutions which provide financial assistance and guidance in launching new ventures and often collaborate with new entrepreneurs to promote new business. They also provide management and technical expertise to the existing enterprises.
  
  
• Government: Both the central and state governments also act as promoters in most cases where the new business is floated either in public sector or joint sector which involve huge amount of capital and risk. HMT, ONGC, SAIL, BHEL are glaring examples of units set up by the government.