UNIT II
PROMOTION AND FORMS OF BUSINESS ORGANISATION
Promotion refers to the entire process by which a company is brought into existence. It starts with the conceptualization of the birth of a company and determination of the purpose for which it is to be formed. The persons who conceive the company and invest the initial funds are known as the promoters of the company.
Following are the main stages of promotion: 1. Discovery of an Idea 2. Detailed Investigation 3. Assembling 4. Financing the Proposition.
Stage 1. Discovery of an Idea:
When a person or persons get an idea that there is the possibility of starting a new business to take advantage of the untapped natural resources or a new invention, discovery of some business opportunities begins.
Such an idea may also be to start a business unit to supply the product at a lower price by breaking the monopoly of existing concern in a particular line of business or to expand an existing concern by converting partnership into private limited company or into public limited company or by combining some going concerns.
But the promoter cannot go ahead immediately after such an idea strikes him. When a person or persons called promoters, understand that there is a possibility of starting some business concern, the idea is said to have been conceived.
Stage 2. Detailed Investigation:
Before money is invested to exploit the idea conceived through a detailed investigation of commercial feasibility of idea with reference to sources of supply, extent of demand, present and potential competition, the amount of capital necessary etc. is absolutely essential. The idea must be put to “the rigid test of cold fact of costs and inflexible law of supply and demand.”
For this purpose promoters have to acquire the services of experts like engineers, values, accountants, statisticians, marketing experts etc. who prepare a report on the position of the market, present and potential competition, amount required for the fixed assets like land, building, machinery, furniture etc.
The report would also include the survey of supply positions of raw material, labour, transport facilities and other relevant items of expenditure. Such an investigation gives the critical appraisal of the idea conceived and reveals whether the idea is commercially feasible or not.
Stage 3. Assembling:
After a detailed investigation of the proposition has been made, the promoter decides whether he wants to take the risk of promotion and decide upon a plan of capitalisation. After this he starts to assemble the proposition.
By assembling we mean projecting the fundamental idea, securing all the property needed by enterprise and making contract with all those who are selected to file the chief management positions.
Stage 4. Financing the Proposition:
The promoter decides about the capital structure of a company. First of all the requirements of finances are estimated and after that the sources from which this money will come are determined. The financial requirements of short period and long period are estimated so that capital figures may be presented in the Memorandum of Association of a company.
Key Takeaways:
- Promotion refers to the entire process by which a company is brought into existence.
- When a person or persons get an idea that there is the possibility of starting a new business to take advantage of the untapped natural resources or a new invention, discovery of some business opportunities begins.
Position of the promoter is fiduciary concerning the company which being the promotes his position is quasi legal. A promoter is neither a trustee nor an agent of the company which he promotes because there is no trust or principal in existence at the time of his efforts.
A promoter plays various function in the formation of a company, from conceiving the idea to taking all the necessary steps to convert the idea into reality. Some of the functions of a promoter are-
1) One of the main functions of a promoter is to comprehend the idea of formation of the company.
2) The promoter looks into the viability and feasibility of the idea that whether the formation of the company will be profitable and practicable or not.
3) After the idea has been conceived, the promoter collects and organizes the resources available to convert the idea into a reality.
4) The promoter decides the name of the Company and also settle the content regarding the Articles of Association and the Memorandum of Association of the Company.
5) The promoter is the one who decides where the head office of the company will be situated. The promoter also nominates people or associations for vital posts. For instance, the promoter may appoint the bankers, auditors and Directors of the company for the first time.
6) The promoter also prepares all the other necessary documents which are required to incorporate a company.
7) Defining the legal status of a promoter can be a very tough job. He cannot be considered an employee, trustee or an agent of the company. The role of the promoter ceases to exist when the company is on the track and is handled by the Board and the Management.
Key Takeaways:
- Position of the promoter is fiduciary concerning the company which being the promotes his position is quasi legal.
- One of the main functions of a promoter is to comprehend the idea of formation of the company.
In business, promotion is any communication that attempts to influence people to buy products or services. Businesses generally promote their brand, products, and services by identifying a target audience and finding ways to bring their message to that audience.
Promotion is a catch-all term that includes all the ways a business can attempt to enhance the visibility of its products, services, or brand. A poster ad at a bus stop is a form of promotion. So is a sale that discounts the price of a product or service for a set amount of time.
The words "promotion" and "advertising" may be used interchangeably, but they're not the same thing. Advertising is one specific action you could take to promote your product or service. In other words, it's one type of promotion.
Promotions can refer to an effort (like an ad), a concept (like a temporary price reduction), or an item (like a branded t-shirt). In practice, promotions usually combine these forms of promotion. For example, a clothing store might plan a sale on jeans and take out an ad in a local newspaper to let people know when and where the sale will happen.
How Does Promotion Work?
Promotion is a vital aspect of any business. Without at least some level of promotion, a business can't get customers, and without them, it's only a matter of time before the business will have to close its doors.
While all businesses need some kind of promotion, they don't all need the same kinds or the same levels of promotion. No two businesses will have the exact same promotional needs, and tactics vary significantly between industries. A corner store might just need a sign that can be seen from the sidewalk that lets customers know the establishment exists. Other businesses may need to invest in direct selling efforts or buy ad time on a streaming service, for instance.
New businesses may have to go through a trial-and-error period of experimenting with different promotional styles before they find the one that's best suited for them. Even established businesses experiment with new promotional strategies in addition to continuing their tried-and-true promotions.
Types of Promotion
Below are just a few examples of the countless ways you can promote your business; include a variety of them in your marketing plan.
- Word of Mouth
This is considered by many to be the most effective way to promote a business and, best of all, it is free. According to Nielsen studies, 83% of consumers trust the recommendations of friends and family. Businesses that consistently go the extra mile to provide superior customer service benefit the most from word of mouth—the more happy customers you have, the more likely one of them is to mention your service to a friend or family member. Actively asking for referrals is one way you can speed up the word of mouth process.
2. Website
A professionally-designed website can be an excellent promotion tool, allowing businesses to inexpensively post up-to-date information on products and services. Most businesses have at least a simple webpage with basic information (address, hours of operation, phone number, etc.), even if they hardly do any other form of internet-based promotion.
3. Social Media
Social media is a popular, inexpensive form of online business promotion. Facebook, Twitter, and YouTube can be effective in reaching customers. If you are skilled at creating videos, you can record video promotions of your products or services and post them on YouTube. Influencer marketing, which leverages celebrities and other well-known personalities to reach their audiences, is another increasingly popular form of social media promotion.
4. The Elevator Pitch
This quick promotional technique is used by business people to give a short two or three sentence description of what their business does and how their products or services might benefit potential customers. A business owner might prepare an elevator pitch before going to a networking event so they can be ready to effectively promote their business at a moment's notice.
5. Business Cards
Even in the digital age, this decades-old form of business promotion persists. In some countries, exchanging business cards remains a crucial aspect of networking and business etiquette.2 Beyond business cards, all types of business documents can be used for promotional purposes, whether it's a branded letterhead or a customized email signature.
6. Vehicle Decorations (Wraps)
Wraps are ads that are printed on vehicles. Anyone who encounters that vehicle in traffic will also see the ad. Many wraps feature a professionally-designed business logo, a tag line, and contact information. Studies have suggested that a vehicle wrap generates 2.5 times the attention as a static billboard, and it can be viewed between 30,000 and 70,000 times a day.3
7. Flyers
Flyers are another relatively old but still highly effective promotional tool. A service company performing work at a residence in a neighborhood can easily drop flyers into neighboring mailboxes. Flyers can also be left on doorsteps, in public spaces, or in the window of a coffee shop.
8. Charity Events
Getting involved in charitable events—whether by hosting, sponsoring, or attending—is a great way to create a positive attitude about your business in the community. These charitable efforts have to be publicized in some way to qualify as a promotion. An anonymous donation may help the cause, but it won't help promote a business.
Owners can find a cause that connects with the business, or they can survey their employees and pick a cause that the entire organization can get behind. These efforts can be as big as bankrolling a large-scale event or as small as organizing a group of employees to spend an afternoon volunteering at a food bank.
Key Takeaways:
- In business, promotion is any communication that attempts to influence people to buy products or services.
- Promotion is a catch-all term that includes all the ways a business can attempt to enhance the visibility of its products, services, or brand.
There are 4 main types of business organization: sole proprietorship, partnership, corporation, and Limited Liability Company, or LLC. Below, we give an explanation of each of these and how they are used in the scope of business law.
- Sole Proprietorship
The simplest and most common form of business ownership, sole proprietorship is a business owned and run by someone for their own benefit. The business’ existence is entirely dependent on the owner’s decisions, so when the owner dies, so does the business.
Advantages of sole proprietorship:
- All profits are subject to the owner
- There is very little regulation for proprietorships
- Owners have total flexibility when running the business
- Very few requirements for starting—often only a business license
Disadvantages:
- Owner is 100% liable for business debts
- Equity is limited to the owner’s personal resources
- Ownership of proprietorship is difficult to transfer
- No distinction between personal and business income
2. Partnership
These come in two types: general and limited. In general partnerships, both owners invest their money, property, labor, etc. to the business and are both 100% liable for business debts. In other words, even if you invest a little into a general partnership, you are still potentially responsible for all its debt. General partnerships do not require a formal agreement—partnerships can be verbal or even implied between the two business owners.
Limited partnerships require a formal agreement between the partners. They must also file a certificate of partnership with the state. Limited partnerships allow partners to limit their own liability for business debts according to their portion of ownership or investment.
Advantages of partnerships:
- Shared resources provides more capital for the business
- Each partner shares the total profits of the company
- Similar flexibility and simple design of a proprietorship
- Inexpensive to establish a business partnership, formal or informal
Disadvantages:
- Each partner is 100% responsible for debts and losses
- Selling the business is difficult—requires finding new partner
- Partnership ends when any partner decides to end it
3. Corporation
Corporations are, for tax purposes, separate entities and are considered a legal person. This means, among other things, that the profits generated by a corporation are taxed as the “personal income” of the company. Then, any income distributed to the shareholders as dividends or profits are taxed again as the personal income of the owners.
Advantages of a corporation:
- Limits liability of the owner to debts or losses
- Profits and losses belong to the corporation
- Can be transferred to new owners fairly easily
- Personal assets cannot be seized to pay for business debts
Disadvantages:
- Corporate operations are costly
- Establishing a corporation is costly
- Start a corporate business requires complex paperwork
- With some exceptions, corporate income is taxed twice
4. Limited Liability Company (LLC)
Similar to a limited partnership, an LLC provides owners with limited liability while providing some of the income advantages of a partnership. Essentially, the advantages of partnerships and corporations are combined in an LLC, mitigating some of the disadvantages of each.
Advantages of an LLC:
- Limits liability to the company owners for debts or losses
- The profits of the LLC are shared by the owners without double-taxation
Disadvantages:
- Ownership is limited by certain state laws
- Agreements must be comprehensive and complex
- Beginning an LLC has high costs due to legal and filing fees
Key Takeaways:
There are 4 main types of business organization: sole proprietorship, partnership, corporation, and Limited Liability Company, or LLC.
References:
1) Business Organization and Management by P.C. Tulsian
