Company Promoters Meaning, Functions and Role, Company Law Notes CBCS Pattern

Company Promoters Meaning, Functions and Role

Company Law Notes CBCS Pattern

Company Promoters Meaning

A promoter is a person who brings a company into existence. A company may have more than one promoter. A promoter may be an individual, a firm or body corporate. One existing company may promote another new company.  In fact all person connected with the formation of a company may be a promoter except those persons who are acting in professional capacity.

According to Sec 2(69) of the Companies Act’ 2013,  “promoter” means a person:

(a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or

(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or

(c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act:

Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;

Functions and Role of Company Promoters

Some of the important functions of promoters of a company are listed below:

1. Discovery of Idea: It is the first stage in the formation of a company. Promoter is the person who discovered the idea to start a new business or expansion of an existing business. Promoter analyse the capital requirement and risk involved in his business idea.

2. Detailed investigation: After discovery of idea and analysis of risk involved in the business, promoter makes a detailed enquiry regarding production process, sources of raw materials, demand of the product, profitability of the products etc. He can also take the help of experts who helps him in deciding the plant location and layout.

3. Assembling of resources: After detailed investigation of idea and verification of that idea from the specialists, the promoter starts collecting all the resources such as capital, land, labour, machine and equipments etc to form a company.

4. Preparing necessary documents: After assembling various factors of production necessary to start a company, the promoter prepares preliminary documents such as Memorandum of association, articles of association and prospectus which is required at the time of registration of a company.

5. Entering into preliminary contracts: Promoter is the person who enters into contract with various parties prior to incorporation of a company for which he is personally liable in case company is not incorporated.

6. Naming a company: The promoter has to select a name of the company. While selecting the name the promoter keeps in mind that the name should not be identical to the name of any other company.