PROMOTION
A business enterprise does not come into existence on its
own. It is the result of the efforts of an entrepreneur who conceives the idea
based on his knowledge of business opportunities and takes necessary steps to
launch the business venture. He is also known as promoter. As a promoter, he
assembles the required funds and people, and serves both as a mother and
mid-wife to the enterprise. Thus, the promoter is the Kingpin of business as
he/she undertakes the risk and gives a concrete shape to business propositions.
Promotion may be undertaken for the purpose of setting up a new business, for
the expansion of an existing business, or for combing two or more business firms.
Distinction between Entrepreneur and
Promoter
Sometimes a distinction is made between 'entrepreneurs'
and 'promoters' of business. Those who are innovators and risk-bearers are
strictly known as 'entrepreneurs' while those who take steps to set up the
business and make it operational are known as 'promoters'. In actual practice,
however, this distinction does riot hold good. Entrepreneurship (act of
entrepreneurs) does not remain confined only to recognition of business
opportunities and preparedness to do something new. It does not end with the
entrepreneur undertaking to bear the risks of business. It includes planning
for the business and taking necessary steps to put it into operation. After
all, a business becomes a business only when it gets going. Thus, in a wider
sense we cannot make a difference between the role of an entrepreneur and the
role of promoter.
Types of Promoters
There are various types of promoters. They are classified as
professional promoters, financial promoters, entrepreneurial promoters,
institutional promoters and government.
1 Professional promoters: These are specialists in
forming new business enterprises. After promoting an enterprise they eventually
handover the control and management to the shareholders of the company.
2 Financial promoters: These promoters float new
enterprises during favourable conditions in securities market. They are people
who have financial stability and looking forward to new opportunities for
investment.
3 Entrepreneurial promoters: These promoters conceive
the idea of a new busines, u do the necessary preliminary work in setting up
the business unit and ultimately control and manage the same. In India most
promoters belong to this category.
4 Institutional promoters: There are some specialised
institutions like Industrial Development Bank of India. National Industrial
Development Corporation, etc., which arc providing technical, managerial and
financial assistance for the promotion of new enterprises. These institutions
collaborate with other entrepreneurs to launch the enterprises.
5 Government: Since independence, Government of India
has emerged as a big promoter of enterprises. It has promoted several
enterprises in different fields such as ordnance factories, heavy electricals,
shipping, iron & steel, fertilizers and pesticides, oil and natural gas,
etc.
PROMOTION OF DIFFERENT TYPES OF
ORGANISATIONS
You have already studied the role of an entrepreneur in
setting up a business. The promoter decides the product or service which has a
market, and then takes necessary steps for launching a business venture. Before
launching the business enterprise, the promoter takes decision about the form
of business ownership. Will it be under single ownership or joint ownership? If
it is to be under joint ownership, will it be a partnership organisation or a
joint stock company? The steps that he has to take in launching the business
will naturally depend upon the form of organisation. The
formalities—particularly the legal formalities-- necessary to stall the
business will be different in each case. Let us first see what is required to
be done to promote a business venture under single proprietorship and
partnership firm.
1- Proprietory Concern
When a business is decided to be set up under single
ownership, there is practically no legal formality involved. Of course, to run
certain types of business activities permission has to obtained front the
Government or local authorities. For instance, to open a restaurant, the
individual proprietor has to get the permission from the Health Department of
the Municipal Corporation. To start a workshop or factory, the proprietor must
get the permission of the Director of Industries through the District
Industries Centre.
A business may also be owned by a Joint Hindu Family. In
such a business, the head of the family, known as Karta has full control over
the income and expenditure of the business. and controls the business
activities just like an individual proprietor. In fact, a joint hindu family
business generally comes into existence when the head of the family dies and
the members of his family decide to continue the family business through the
senior most member of the family. This form of organisation of business also
does not require any legal formality.
2- Partnership Firm
You know that partnership is the relationship between two or
more persons who-have agreed to share the profits of a business. The business
may be carried on by all or by any of them acting for all. Collectively those
persons are known as 'a firm' and individually they are known as 'partners'.,
The agreement between the partners may be oral or in writing. A partnership
business comes into existence as a result of an agreement between two or more
persons. Hence, a partnership firm has no separate existence in the eyes of
law. It has no independent legal existence. No legal formality is, thus,
required to launch a partnership business and to run it.
However, if the partners desire, a partnership firm can be
registered with the Registrar 01 Firms by filling up a form of application. A
fee of Rs. 3 is to be paid for that purpose. Registration of partnership is not
compulsory under the law. But it is desirable because an unregistered firm is
not permitted to file a law suit or start other legal proceedings against any
third party to recover its claims. Moreover, no partner of such a firm can file
a suit to enforce his rights against other partners under the partnership
agreement, although third parties can file suits against the firm as well as
the partners.
Before starting a partnership business, the partners come to
an agreement about their mutual rights and obligations. If it is an oral
agreement there is always a possibility of misunderstanding or dispute among
the partners as regards their respective rights and liabilities. To avoid any
dispute in future, it is advisable that the agreement should be in writing. The
written agreement is known as 'partnership deed'. It should be drawn on a
stamped paper and signed by all the partners. The partnership deed should
contain the nature and place of business, duration of partnership. capital to
be contributed and share of profits of each partner, rights, duties and
obligations of partners, salary payable to any partner, and all such clauses as
may be agreed upon.
3 Joint Stock Company
You have learnt that a company is an association of persons.
So, there must be more than one person to start a company. A partnership firm
also must have more than one person involved in the business. But legally
speaking, a partnership firm has no existence apart from its partners. On the
other hand, a company after it is formed acquires a separate legal identity. It
is regarded in law as a separate entity distinct from the members who join it.
Because of this feature, the promotion of a company requires a number of legal formalities
to be completed before it can be established. One or more promoters can take
the responsibility of bringing a company into existence.
The Indian Companies Act. 1956 contains provisions regarding
the legal formalities for setting up a company. You know that from the point of
view of ownership. mainly two types of companies can be formed under the
Companies Act--private company and public company. The promoters have to decide
which type of company they would prefer to form. For the purpose of running a
business, promoters generally want that the liability of members should be
limited to the amount of capital that they agree to contribute. Accordingly,
the company decided to be set up may be a private limited company or a public limited
company. Whether it is a private limited or a public limited company. it is
necessary that the company is duly registered under the Companies Act. The
official appointed for the registration of companies is the Registrar of
Companies. For each State or group of States in India, there is a Registrar of
Companies. For instance, there is a Registrar of Companies for the Union
Territory of Delhi and Haryana. His office is in New Delhi.
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