ENTREPRENEURSHIP DEVELOPMENT II Yr, STUDY NOTES- UNIT 2
UNIT- II ENTERPRISE PLANNING
Forms of Private Sector Enterprises
“The enterprises which are owned, controlled, and managed by private individuals, with the main objective of earning profit comes under this category. Private individuals can start a venture as: (a) Sole proprietorship (b) Partnership (c) Joint Stock Company (d) Co-operative Society.
1 Sole proprietorship
‘Sole Proprietorship’ form of business organisation refers to a business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.
Characteristics of sole proprietorship
1) One man ownership and control 2) Individual financing 3) No separate legal entity 4) Unlimited liability
5) Sole beneficiary 6) Easy formation and closure 7) Limited area of operation
Registration of Sole proprietorship
A sole proprietorship need not to be registered . A few general factors are also to be considered
1. Business name Sole proprietors are under no obligations to select a trade name for their business.
However they are free to do so, if they desire to.
2. Service tax registration Through appropriate Form, the sole proprietor should register under the service
tax if their revenue from services exceeds the specified limit.
3. VAT/CST registration If proprietorship sells tangible goods within a state, then Value Added Tax (VAT)
applies, if it is inter-state, then Central Sales Tax (CST) applies.
4. Others requirements PAN Card number of the sole proprietor, bank account number in the name of
sole proprietorship business, Shops and Establishment License, Employee Provident Fund Registration or Importer Exporter Code (in case of export-import business) as and where applicable, have to be complied with.
5. Payment of taxes A sole trader has to ensure his business meets the State and Central taxation requirements. Due to the fact that legally, a Sole Proprietorship and a sole trader are single entity, the sole trader bears the taxes of the business.
2. Partnership
Indian Partnership Act 1932 defines Partnership as “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
Characteristics of partnership
1) Two or more persons: 2) Agreement 3) Profit sharing 4) Unlimited liability 5) Implied authority 6) Mutual agency
7) Utmost good faith 8) Restriction on transfer of share of interest 9) Continuity
Registration procedure of a partnership firm
Registration of a partnership firm is optional. A partnership firm can be registered whether at the time of its formation or even subsequently. Partners needs to file an application with the Registrar of Firms of the area in which his/her business is located. Application for partnership registration should include the following information:
1) Name of the firm 2) Name of the place where business is carried on 3) Names of any other place where business is carried on 4) Date of partners joining the firm 5) Full name and permanent address of partners6) Duration of the firm.
Every partner needs to verify and sign the application. Ensure that the following documents and prescribed fees are enclosed with the registration of application. a) Application for registration in the prescribed form. b) Duly filled specimen of affidavit c) Certified copy of the partnership deed d) Proof of ownership of the place of business Once the Registrar is satisfied with the application procedure, he will issue the Certificate of Registration.
3. Joint Stock Company
Joint stock company is a modern form of business organisation emerged to meet the requirements of large sized business. According to section 3 of Indian companies act, 1956, “A company means a company formed and registered under this act or any previous act.”
Characteristics of a Company 1) Voluntary association 2) Artificial person 3) Separate legal entity 4) Common seal 5) Limited liability 6) Transferability of shares 7) Separation of ownership and management
4 .Co-operative Organisations
The Section 4 of the Indian Co-operative Societies Act 1912 defines Co-operative Society as “a society, which has its objectives for the promotion of economic interests of its members in accordance with cooperative principles.”
Features of Co-operative Organisations 1. Voluntary association 2. Democratic management 3. Service motive 4. Capital and return thereon 5. Government control 6. Distribution of surplus
Registration procedures of co-operative society
The procedure for registration of co-operative societies are detailed below :
1. Every application of registration of a society under sub-section (i) of section 6M shall be in duplicate in Form NO. 1. The application form should be accompanied by: • Three copies of the proposed Bye Law of the Society.
• A certificate from the bank stating the credit balance in favour of the proposed society therein.
• A list of persons in duplicate who have contributed to the share capital together with the amount contributed and the entrance fee paid by each of them.
• The scheme showing the details as to the Economic Soundness of the proposed society ; and
• Such other documents as may be specified by the Registrar.
2. When the applicants are individuals, the application shall be signed by not less than 25 persons and each of such persons drawn from different families.
3. A court fees stamp of the value of Rs. 5 shall be affixed to the original application.
4. The application shall be sent to the Registrar by registered post or delivered in office in person. Registration
(As per section 7 and rule 4)
1. On receipt of an application, the Registrar shall enter the particulars of the application in the Register of Application to be maintained in Form No.2.
2. The Registrar will then examine the application and bye laws.
3. If the Registrar is satisfied, a certificate of registration(form no 3)signed by him The certificate of registration shall contain the register number of the society and the date of its registration
4. When the Registrar is not satisfied, he shall pass an order of refusal together with the reasons therefore and communicate it by registered post to the chief promoter with in 7 days of such order.
5. A copy of the certificate of Registration together with a copy of the byelaw shall be furnished to the financing bank.
The Micro Small and Medium Enterprises Development (MSMED) Act 2006
The Act has come into force from 2nd October 2006.The earlier concept of industries has been changed to enterprises. The registration system has discontinued. At present the system is to file a memorandum.
Classification of Enterprises under MSMED Act
The enterprises have been classifies broadly into two. 1. Manufacturing enterprises 2. Service enterprises
Manufacturing enterprises : Manufacturing Enterprises have been further classified into 3 in terms of investment in plant and machinery(excluding land and building) . They are:
a) Micro enterprises-investment up to Rs. 25 lakhs b) Small enterprises-investment above Rs. 25 lakhs and up to Rs. 5 crore. c) medium enterprises- investment above Rs. 5 crore and up to Rs. 10 crore.
Service enterprises Service Enterprises have been further classified into 3 in terms of investment in plant and machinery (excluding land and building) . They are:
(a) Micro enterprises - investment up to Rs. 10 lakhs ( b) Small enterprises - investment above Rs. 10 lakhs and up to Rs. 2 crore. (c) Medium enterprises - investment above Rs. 2 crore and up to Rs. 5 crore.
Legal formalities expected to be complied by the entrepreneur
1. Obtain PAN number from Income Tax Department 2. Open a current account 3. `Register your company
4. Register for service tax 5. Register for VAT/sales tax 6. Excise duty (If applicable) 7. Customs duty
8. File entrepreneurship memorandum at DIC 9. Apply for TAN 10. Permissions required at the construction stage
11. Employee’s Provident Fund (EPF) 12. Employee’s State Insurance (ESI) scheme
Recent Trends in Entrepreneurship Development
E-Entrepreneurship
E-Entrepreneurship refers to establishing a new company with an innovative business idea within the net economy, which, using an electronic platform in data networks, offers its products and services based upon a purely electronic creation of value. Essentially this value offer was only made possible through the development of Information technology.
Technopreneur
Technopreneur means an Entrepreneur with high technology. Technopreneur may be defined as “ type of entrepreneur that has a strategic role in accelerating national development is the one with innovation as its base”. It includes;
• Website Design and development • Software design and development • Animation and 3D • Game development
• Blogging • Online selling
Virtual Marketing
In such markets, buyers purchase goods and services through internet. In such a market the buyers and sellers do not meet or physically, instead the transaction is done through internet. Examples – Rediff shopping, e-Bay, etc.
Enlightened Marketing
Enlightened Marketing is based on the philosophy that a company should make good marketing decisions by considering some of the long term factors in mind. Those factors should support the best long run performance of the marketing system. Some of those factors are consumer’s wants, the company’ s requirements, and society’s long term interests.
Institutional Support to Entrepreneurs
There are institutions that meet the financial and non-financial requirement of entrepreneurs which are explained below:
Specialised financial Institutions :- Apart from commercial banks, the following special financial Institutions are giving financial and re-financial assistance to the Entrepreneurs.
1.Industrial Finance Corporation of India(IFCI)
Established on July 1, 1948 to cater to the long-term finance needs of the industrial sector
2. Industrial Credit and Investment Corporation of India (ICICI)
Incorporated in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. Its main objective is to provide medium-term and long-term project financing.
3. Industrial Development Bank of India (IDBI)
Incorporated in 1964 which provide refinancing facility to industrial loans granted bybanks and financial institutions
4. Small Indistries Development Bank of India (SIDBI)
Apex financial institution for Promotion, Financing and Development of industries in SSI
5. National Bank for Agriculture and Rural Development (NABARD)
National Bank for Agriculture and Rural Development (NABARD) was established by an Act of the Parliament on 12 July1982 to facilitate credit flow for agriculture , rural infra structure and development.
6. The Industrial Investment Bank of India(IIBI)
The Industrial Investment Bank of India is a 100% Government of India-owned financial investment institution which offers assistance for project finance
State level
1.Kerala Financial Corporation (KFC)
KFC has been incorporated under the SFC Act 1951 with its headquarters at Thiruvananthapuram which provides assistance to the new industrial units and for expansion, diversification and modernisation of existing units.
2.State Industrial Development Corporation (SIDCs)
Incorporated under the Companies Act 1956. SIDCs were setup in different states as wholly owned companies for promoting industrial development in their respective states. The main aim is to prove term finance to all small, medium, and large industrial enterprises set up in the state.
Supporting Institutions
1 National Skill Development Corporation(NSDC)
The National Skill Development Corporation(NSDC) is a one of its kind, Public Private Partnership in India, under the Ministry of Skill Development and Entrepreneurship. It aims at promoting skill development by catalysing creation of large quality for promote vocational institutions. NSDC provides funding to build scalable for promote vocational training initiatives. Its mandate is to enable support systems quality assurance, information systems and to train the trainer academies either directly or through partnerships. NSDC acts as a catalyst in skill development by providing funding to enterprises, companies and organizations that provide skill training.
Kaushal Kendra
Kaushal Kendra are being set up as community centre focused on rural population .It is being set up in all Districts with the objectives of enhancing global level competency to the rural youth, career path and orientation.
Mudra Bank (Micro Units Development and Refinancing Agency)
Mudra Bank is a new institution being set up by Government of India for development and refinancing activities relating to micro units. Micro Units Development and Refinance Agency Ltd were launched on 8 April,2015 with a corpus of Rs. 20,000 crore.
Objectives of Mudra Bank 1. Extend finance and credit support to Micro-finance Institutions (MFI) and agencies that lend money to small business, retailers, self-group and individuals. 2. Offer a Credit Guarantee scheme for providing guarantees to loans being offered to micro business. 3. Register all MFIs and introduce a system of performance rating.4. Provide structural guidelines for the borrowers.
Kerala Academy for Skills Excellence(KASE)
The young workforce of Kerala and elevating their skills to global standards for employment in India and abroad, the Government of Kerala has set up Kerala Academy for Skills Excellence(KASE), a non-profit public company as the nodal
agency for all skill development activities of the state.
Kerala State Entrepreneur Development Mission(KSEDM)
KSEDM is an ambitious scheme of the Government of Kerala, aims at inculcating entrepreneurial confidence among youth of the State through the process of selecting persons with aptitude and earnestness, training them meticulously and
enabling them avail finance on easy terms from Banks/ Financial Institutions.
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Forms of Private Sector Enterprises
“The enterprises which are owned, controlled, and managed by private individuals, with the main objective of earning profit comes under this category. Private individuals can start a venture as: (a) Sole proprietorship (b) Partnership (c) Joint Stock Company (d) Co-operative Society.
1 Sole proprietorship
‘Sole Proprietorship’ form of business organisation refers to a business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.
Characteristics of sole proprietorship
1) One man ownership and control 2) Individual financing 3) No separate legal entity 4) Unlimited liability
5) Sole beneficiary 6) Easy formation and closure 7) Limited area of operation
Registration of Sole proprietorship
A sole proprietorship need not to be registered . A few general factors are also to be considered
1. Business name Sole proprietors are under no obligations to select a trade name for their business.
However they are free to do so, if they desire to.
2. Service tax registration Through appropriate Form, the sole proprietor should register under the service
tax if their revenue from services exceeds the specified limit.
3. VAT/CST registration If proprietorship sells tangible goods within a state, then Value Added Tax (VAT)
applies, if it is inter-state, then Central Sales Tax (CST) applies.
4. Others requirements PAN Card number of the sole proprietor, bank account number in the name of
sole proprietorship business, Shops and Establishment License, Employee Provident Fund Registration or Importer Exporter Code (in case of export-import business) as and where applicable, have to be complied with.
5. Payment of taxes A sole trader has to ensure his business meets the State and Central taxation requirements. Due to the fact that legally, a Sole Proprietorship and a sole trader are single entity, the sole trader bears the taxes of the business.
2. Partnership
Indian Partnership Act 1932 defines Partnership as “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
Characteristics of partnership
1) Two or more persons: 2) Agreement 3) Profit sharing 4) Unlimited liability 5) Implied authority 6) Mutual agency
7) Utmost good faith 8) Restriction on transfer of share of interest 9) Continuity
Registration procedure of a partnership firm
Registration of a partnership firm is optional. A partnership firm can be registered whether at the time of its formation or even subsequently. Partners needs to file an application with the Registrar of Firms of the area in which his/her business is located. Application for partnership registration should include the following information:
1) Name of the firm 2) Name of the place where business is carried on 3) Names of any other place where business is carried on 4) Date of partners joining the firm 5) Full name and permanent address of partners6) Duration of the firm.
Every partner needs to verify and sign the application. Ensure that the following documents and prescribed fees are enclosed with the registration of application. a) Application for registration in the prescribed form. b) Duly filled specimen of affidavit c) Certified copy of the partnership deed d) Proof of ownership of the place of business Once the Registrar is satisfied with the application procedure, he will issue the Certificate of Registration.
3. Joint Stock Company
Joint stock company is a modern form of business organisation emerged to meet the requirements of large sized business. According to section 3 of Indian companies act, 1956, “A company means a company formed and registered under this act or any previous act.”
Characteristics of a Company 1) Voluntary association 2) Artificial person 3) Separate legal entity 4) Common seal 5) Limited liability 6) Transferability of shares 7) Separation of ownership and management
4 .Co-operative Organisations
The Section 4 of the Indian Co-operative Societies Act 1912 defines Co-operative Society as “a society, which has its objectives for the promotion of economic interests of its members in accordance with cooperative principles.”
Features of Co-operative Organisations 1. Voluntary association 2. Democratic management 3. Service motive 4. Capital and return thereon 5. Government control 6. Distribution of surplus
Registration procedures of co-operative society
The procedure for registration of co-operative societies are detailed below :
1. Every application of registration of a society under sub-section (i) of section 6M shall be in duplicate in Form NO. 1. The application form should be accompanied by: • Three copies of the proposed Bye Law of the Society.
• A certificate from the bank stating the credit balance in favour of the proposed society therein.
• A list of persons in duplicate who have contributed to the share capital together with the amount contributed and the entrance fee paid by each of them.
• The scheme showing the details as to the Economic Soundness of the proposed society ; and
• Such other documents as may be specified by the Registrar.
2. When the applicants are individuals, the application shall be signed by not less than 25 persons and each of such persons drawn from different families.
3. A court fees stamp of the value of Rs. 5 shall be affixed to the original application.
4. The application shall be sent to the Registrar by registered post or delivered in office in person. Registration
(As per section 7 and rule 4)
1. On receipt of an application, the Registrar shall enter the particulars of the application in the Register of Application to be maintained in Form No.2.
2. The Registrar will then examine the application and bye laws.
3. If the Registrar is satisfied, a certificate of registration(form no 3)signed by him The certificate of registration shall contain the register number of the society and the date of its registration
4. When the Registrar is not satisfied, he shall pass an order of refusal together with the reasons therefore and communicate it by registered post to the chief promoter with in 7 days of such order.
5. A copy of the certificate of Registration together with a copy of the byelaw shall be furnished to the financing bank.
The Micro Small and Medium Enterprises Development (MSMED) Act 2006
The Act has come into force from 2nd October 2006.The earlier concept of industries has been changed to enterprises. The registration system has discontinued. At present the system is to file a memorandum.
Classification of Enterprises under MSMED Act
The enterprises have been classifies broadly into two. 1. Manufacturing enterprises 2. Service enterprises
Manufacturing enterprises : Manufacturing Enterprises have been further classified into 3 in terms of investment in plant and machinery(excluding land and building) . They are:
a) Micro enterprises-investment up to Rs. 25 lakhs b) Small enterprises-investment above Rs. 25 lakhs and up to Rs. 5 crore. c) medium enterprises- investment above Rs. 5 crore and up to Rs. 10 crore.
Service enterprises Service Enterprises have been further classified into 3 in terms of investment in plant and machinery (excluding land and building) . They are:
(a) Micro enterprises - investment up to Rs. 10 lakhs ( b) Small enterprises - investment above Rs. 10 lakhs and up to Rs. 2 crore. (c) Medium enterprises - investment above Rs. 2 crore and up to Rs. 5 crore.
Legal formalities expected to be complied by the entrepreneur
1. Obtain PAN number from Income Tax Department 2. Open a current account 3. `Register your company
4. Register for service tax 5. Register for VAT/sales tax 6. Excise duty (If applicable) 7. Customs duty
8. File entrepreneurship memorandum at DIC 9. Apply for TAN 10. Permissions required at the construction stage
11. Employee’s Provident Fund (EPF) 12. Employee’s State Insurance (ESI) scheme
Recent Trends in Entrepreneurship Development
E-Entrepreneurship
E-Entrepreneurship refers to establishing a new company with an innovative business idea within the net economy, which, using an electronic platform in data networks, offers its products and services based upon a purely electronic creation of value. Essentially this value offer was only made possible through the development of Information technology.
Technopreneur
Technopreneur means an Entrepreneur with high technology. Technopreneur may be defined as “ type of entrepreneur that has a strategic role in accelerating national development is the one with innovation as its base”. It includes;
• Website Design and development • Software design and development • Animation and 3D • Game development
• Blogging • Online selling
Virtual Marketing
In such markets, buyers purchase goods and services through internet. In such a market the buyers and sellers do not meet or physically, instead the transaction is done through internet. Examples – Rediff shopping, e-Bay, etc.
Enlightened Marketing
Enlightened Marketing is based on the philosophy that a company should make good marketing decisions by considering some of the long term factors in mind. Those factors should support the best long run performance of the marketing system. Some of those factors are consumer’s wants, the company’ s requirements, and society’s long term interests.
Institutional Support to Entrepreneurs
There are institutions that meet the financial and non-financial requirement of entrepreneurs which are explained below:
Specialised financial Institutions :- Apart from commercial banks, the following special financial Institutions are giving financial and re-financial assistance to the Entrepreneurs.
1.Industrial Finance Corporation of India(IFCI)
Established on July 1, 1948 to cater to the long-term finance needs of the industrial sector
2. Industrial Credit and Investment Corporation of India (ICICI)
Incorporated in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. Its main objective is to provide medium-term and long-term project financing.
3. Industrial Development Bank of India (IDBI)
Incorporated in 1964 which provide refinancing facility to industrial loans granted bybanks and financial institutions
4. Small Indistries Development Bank of India (SIDBI)
Apex financial institution for Promotion, Financing and Development of industries in SSI
5. National Bank for Agriculture and Rural Development (NABARD)
National Bank for Agriculture and Rural Development (NABARD) was established by an Act of the Parliament on 12 July1982 to facilitate credit flow for agriculture , rural infra structure and development.
6. The Industrial Investment Bank of India(IIBI)
The Industrial Investment Bank of India is a 100% Government of India-owned financial investment institution which offers assistance for project finance
State level
1.Kerala Financial Corporation (KFC)
KFC has been incorporated under the SFC Act 1951 with its headquarters at Thiruvananthapuram which provides assistance to the new industrial units and for expansion, diversification and modernisation of existing units.
2.State Industrial Development Corporation (SIDCs)
Incorporated under the Companies Act 1956. SIDCs were setup in different states as wholly owned companies for promoting industrial development in their respective states. The main aim is to prove term finance to all small, medium, and large industrial enterprises set up in the state.
Supporting Institutions
1 National Skill Development Corporation(NSDC)
The National Skill Development Corporation(NSDC) is a one of its kind, Public Private Partnership in India, under the Ministry of Skill Development and Entrepreneurship. It aims at promoting skill development by catalysing creation of large quality for promote vocational institutions. NSDC provides funding to build scalable for promote vocational training initiatives. Its mandate is to enable support systems quality assurance, information systems and to train the trainer academies either directly or through partnerships. NSDC acts as a catalyst in skill development by providing funding to enterprises, companies and organizations that provide skill training.
Kaushal Kendra
Kaushal Kendra are being set up as community centre focused on rural population .It is being set up in all Districts with the objectives of enhancing global level competency to the rural youth, career path and orientation.
Mudra Bank (Micro Units Development and Refinancing Agency)
Mudra Bank is a new institution being set up by Government of India for development and refinancing activities relating to micro units. Micro Units Development and Refinance Agency Ltd were launched on 8 April,2015 with a corpus of Rs. 20,000 crore.
Objectives of Mudra Bank 1. Extend finance and credit support to Micro-finance Institutions (MFI) and agencies that lend money to small business, retailers, self-group and individuals. 2. Offer a Credit Guarantee scheme for providing guarantees to loans being offered to micro business. 3. Register all MFIs and introduce a system of performance rating.4. Provide structural guidelines for the borrowers.
Kerala Academy for Skills Excellence(KASE)
The young workforce of Kerala and elevating their skills to global standards for employment in India and abroad, the Government of Kerala has set up Kerala Academy for Skills Excellence(KASE), a non-profit public company as the nodal
agency for all skill development activities of the state.
Kerala State Entrepreneur Development Mission(KSEDM)
KSEDM is an ambitious scheme of the Government of Kerala, aims at inculcating entrepreneurial confidence among youth of the State through the process of selecting persons with aptitude and earnestness, training them meticulously and
enabling them avail finance on easy terms from Banks/ Financial Institutions.
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