Promotion

Forming a company passes through three stages: promotion, incorporation, and capital subscription. The last stage is needed only by a public company that wants to raise money from the public.

Promotion starts with an idea. The promoters are the people who conceive the idea of a business, check whether it can work, and bring together the five Ms: men, materials, machinery, management and money.

The promoters first make feasibility studies:

• Technical: can the product actually be made, with the technology and raw materials available?
• Financial: can the money the project needs actually be raised?
• Economic: will the business earn a profit, "can we make money out of it?"

If any study gives a negative answer, the idea is dropped. Experts such as chartered accountants or engineers may help with these studies, but they are only advisers; they do not become promoters.

Next, the promoters choose a name and apply to the Registrar of Companies for approval, giving three names in order of priority. The name must not be identical or too similar to an existing company's name, must not be misleading, and must not be barred by the Emblems and Names (Prevention of Improper Use) Act, 1950.

The promoters also fix the signatories to the Memorandum (the people who will sign it and become its first members), appoint professionals such as bankers, auditors and legal advisers, and prepare the documents needed for registration.