A more thorough explanation:

Promotional stock is stock issued by a newly formed company to its promoters as a reward for promoting the company. Promoters can promote the company by raising capital, finding new shareholders, signing contracts, or filing articles of incorporation.

When a new company is formed, it needs to attract investors and raise capital to get off the ground. Promoters are individuals who help the company achieve these goals by spreading the word about the company and its potential. In return for their efforts, the company may issue promotional stock to the promoters.

However, promotional stock is not backed by the shareholders' money or assets, which means that it carries a higher risk than regular stock. To protect investors, federal securities and exchange regulations and most states limit the amount of promotional stock that can be issued to an amount that is proportional to the promoter's efforts.

• John is a promoter for a new tech startup. He helps the company raise $50,000 in seed funding by reaching out to his network of investors. In return, the company issues him 5,000 shares of promotional stock.
• Sarah is a promoter for a new restaurant chain. She helps the company sign a lease for a new location and attracts several new investors. In return, the company issues her 2,000 shares of promotional stock.

In both examples, the promoters receive promotional stock as a reward for their efforts in promoting the company. The amount of stock issued is proportional to the value of their contributions, which helps to ensure that the stock is not overvalued and that investors are protected.