MODULE 2

• When the entrepreneur wish to raise a loan, the banker, the financial
institution, the money lender like to know the form of ownership of the
enterprise
• What form of ownership will be chosen depends on factors like one
personal capacity
• to take decisions
• Bear risk
• Economic soundness
• Educational attainment etc.
TYPES OF OWNERSHIP

Ownership can be of different kinds

1. Sole proprietorship
2. Partnership firm
3. company
4. Cooperative society
Definition of Sole Proprietorship:
• It is that type of business organization which is owned, managed and controlled
by a single owner.
• A sole proprietor is the beneficiary of all profits.
• All risks are to be borne by the sole proprietor.
• The sole proprietor has unconditional and full control over its business.

• Example: Beauty parlour, barbershop, general store and sweet shop run by a
single owner.
FEATURES OF SOLE PROPRIETORSHIP

(1) One man ownership: In sole proprietorship, only one man is the owner of
the enterprise
(2) Formation and Closure:
• This type of business organization is formed by the owner himself.
• No legal conventions are obliged to start the sole proprietorship form of
organization.
• In some instances, the legal formalities are required or the owner should have
a particular license or a certificate to run the business.
• The owner can close the business at his own discretion.
• Example: Goldsmith or a person running a medical shop should have a license
to run this type of business.
(3) Unlimited Liability:
In the sole proprietorship business, the sole owner has unlimited liability.
Unlimited liability means that in case the enterprise incurs losses, the
private property of proprietor can also be utilized for meeting the
business obligations to outside parties
Example: A loan taken by the owner of the sweet shop is solely
responsible for the repayment of the loan to the bank.
(4)Sole Risk Bearer and Profit Recipient
A sole proprietor is only the one who bears all risks which are related to
its business.
All the profits or losses which are earned from the business are to be
enjoyed by the sole owner.
(5) Control
• As all the rights and responsibilities lie with the sole proprietor that is why he
controls all the business activities.
• No one can interfere in the business activities of a sole proprietor.
• Hence, only the sole proprietor can modify his plans accordingly.

(6) No Separate Entity

• According to the accounting system, the owner and the business are
considered as two separate entities.
• But the law does not make any distinction between the sole trader and its
business.
• Hence, without the sole trader, the business has no identity because he is the
only person who performs all the business activities.
(7) No separation between ownership and management:
In sole proprietorship, management rests with the proprietor himself. The
proprietor is a manager also
(8) Lack of Business Continuity

• Death, imprisonment, physical ailment, insanity or bankruptcy of the

sole proprietor will directly affect the business or it may cause shutting
down of the business.
• In the case of the beneficiary, successor or legal heir of sole proprietor,
he can run the business on behalf of the proprietor.
(7) Less formalities:
A proprietorship business can be started without completing much legal
formalities.
ADVANTAGES OF A SOLE
PROPRIETORSHIP
(1)Simple form of organisation
Sole proprietorship is the simplest form of organisation. The
entrepreneur can start the enterprise after obtaining licence and
permits. There is no need to go through the legal formalities. For
staring small enterprise, no formal registration is statutorily needed
(2) Quick Decision Making
A sole proprietor has the freedom to make any decision. Therefore,
the decision would be prompt as they don’t have to take the
permission of others.
(3) Confidentiality of Information
Being only the owner of the business, it allows him/her to keep all the business information to be
private and confidential.
(4) Direct Incentive
A sole proprietor directly has the right to have all the profit or benefits of a company.
(5) Sense of Accomplishment
He/she can have the personal satisfaction associated with working without any guidance or
alone.
(6) Tax advantage
Proprietorship form of ownership enjoys certain tax advantages. For example, a proprietors
income is taxed only once while the corporate income is at occasions taxed twice.
(7) Easy Dissolution In proprietorship business, the entrepreneur is all in all. As there are no
co-owners or partners , there is no scope for the difference of opinion in case the proprietor
wants to dissolve the business. It is due to easy formation and dissolution , proprietorship is
often used to test the business ideas
 DISADVANTAGES

1. Limited resources: A proprietor has limited resources. The proprietor mainly relies on his funds and
savings and to a limited extent borrowing from relatives and friends. Thus the scope of raising funds is
highly limited in proprietorship. This in turn deters the expansion and development of an enterprise
2. Limited ability: Proprietorship is characterised as one man show. One man may be expert in one or
two areas, but not in all areas like production, finance, marketing, personnel etc. Due to the lack of
adequate and relevant knowledge, the decision taken by him may be imbalanced
3. Unlimited liability: Proprietorship is characterised by unlimited liability also. It means that in case of
loss, the private property of the proprietor will also be used to clear the business obligations. Hence
proprietor avoids taking risk
4. Limited life of enterprise: The life of a proprietary enterprise depends solely upon the life of the
proprietor. When he dies or becomes insolvent or insane or permanently incapacitated, there is very
likelihood of closure of enterprise
STARTING A PROPRIETORSHIP IN INDIA

Starting a sole proprietorship requires no legal formalities or registration. However,

business licenses as required by State / Central Government and tax registrations must
be obtained. Further, the trademark registration is recommended, in case the name of
the business is unique or brandable.
Business licenses are a must for any business, irrespective of the type of business entity.
Examples of business licenses include:
• Food Business Operator License – Required for businesses handling food
• Security Agency License – Required to provide security services
• Shop & Establishment License – Required while operating shops and commercial
establishments
Some of the tax registrations that would be required for a proprietorship include:
• GST Registration – Required as per GST turnover limit based on the type of
business
• Professional Tax Registration – Required for businesses employing Professionals
• ESI/PF Registration – Required for most businesses having employees

There is no Registrar or Registry for Proprietorships in India. Therefore, a

proprietorship can usually be operated under any name, as long as it doesn’t
conflict with any trademark registrations and/or is not in conflict with other rules
and regulations. It is recommended to obtain a trademark registration.
PARTNERSHIP

• Proprietorship form of ownership suffers from limitations

such as limited resources, limited skill and unlimited
liability
• Expansion in business requires more capital and
managerial skills and also involves more risk
• Proprietor finds him unable to fulfil these requirements
• This calls for more persons come together with different
edges and start business
DEFINITION OF PARTNERSHIP

• We can define partnership as an association of two or more

persons who have agreed to share the profits of a business
which they run together.
• This business may be carried on by all or anyone of them acting
for all.
• The persons who own the partnership business are individually
called partners and collectively they are called firm or
partnership firm
 MAIN FEATURES OF PARTNERSHIP

1. More persons: There should be at least two persons subject to a

maximum of ten persons for banking business and twenty for non
banking business to form a partnership firm
2. Profit and loss sharing: There is an agreement among the
partners to share the profits earned and losses incurred in
partnership business
3. Contractual relationship: Partnership is formed by an agreement
– oral or written among the partners
4. Existence of lawful business: Partnership is formed to carry on some lawful
business and share its profits or losses incurred in partnership business
5. Utmost good faith and honesty: A partnership business solely rests on utmost good
faith and trust among the partners
6. Unlimited liability: Like proprietorship, each partner has unlimited liability in the
firm. This means that if the assets of the partnership firm fall short to meet firm’s
obligations, the partners private assets will also be used for the purpose
7. Restrictions on transfer of share: No partner can transfer his share to any outside
person without seeking the consent of all other partner’s
8. Principal agent relationship: The partnership firm may be carried on by all partners
or any of them acting for all. While dealing with firm’s transactions, each partner is
entitled to represent the firm and other partners . In this way, a partner is an agent of the
firm and other partners.
ADVANTAGES

1. Easy formation: Partnership is a contractual agreement between the

partners to run an enterprise. Hence it is relatively easy to form. Legal
formalities associated with formal are minimal. Though the registration of a
partnership is desirable, but not obligatory
2. More capital available: Sole proprietorship suffers from the limitations of
limited funds. Partnership overcomes this problem to a great extent, because
there are more than one person who provide fund to the enterprise. It
increases the borrowing capacity of the firm. The lending institutions perceive
less risk in granting credit to a partnership than to a proprietorship because
the risk of loss is spread over a number of partners rather than only one
3. Combined talent, judgement and skill: As there are more than one owners in
partnership, all the partnership are involved in decision making. Usually partners are
pooled from different specialised areas to complement each other. For example, if there
are 3 partners, one partner might be a specialist in production, another in finance and
the third in marketing. This gives the firm an advantage of collective expertise for taking
better decisions
4. Diffusion of risk: In case of partnership, the losses are shared by all the partners as
per their agreed profit sharing ratios. Thus the share of loss in case of each partner will
be less than that in case of proprietorship
5. flexibility: The partners can easily appreciate and quickly react to the changing
condition.
6. Tax advantage: taxation rates applicable to partnership are lower than proprietorship
and company forms of business ownership
DISADVANTAGES

1. Unlimited liability: In partnership firm, liability of partners is unlimited. Just

as proprietorship, the partners personal asset may be at risk if the business
cannot pay its debts
2. Divided authority: each partner can discharge his responsibilities in his
concerned individual area. But in case of areas like policy formulation for the
whole enterprise, there are chances of conflicts between partners.
Disagreement between the partners over enterprise matters have destroyed
many a partnership
3. Lack of continuity: Death or withdrawal of one partner causes the partnership
came to an end. So there remains uncertainty in continuity of partnership
• 4. Risk of implied authority: each partner is an agent for the partnership business.
Hence the decisions made by him bind all the partners. At times an incompetent
partner may lend the firm into difficulties by taking wrong decisions. Risks involved in
decisions taken by one partner are to be borne by other partners also. Choosing a
business partner is much like choosing a life partner
PARTNERSHIP DEED

• Partnership is an agreement between the persons to

carry on a business
• The agreement entered into between partners may be
either oral or written
• When the agreement is written in form, it is called
partnership deed. It must be duly signed by the partners,
stamped and registered. Any alteration in partnership
deed can be made with mutual consent of all partners
A PARTNERSHIP DEED GENERALLY CONTAINS THE FOLLOWING
REGISTRATION OF THE FIRM

• Under the Indian partnership Act 1932, the registration of the firm
is not compulsory
• Registration can be done at any time
• The registration of partnership firm involves the following
procedure
1. The firm will have to apply to the registrar of firms of respective
state Government in a prescribed application form
2. The form should be duly signed by all the partners
3. The application should contain the following information
• When the registrar of firms is satisfied that all
formalities relating to registration have been fully
complied with, he makes an entry in the registrar
of firms.
• Thus the firm is considered to be registered
• The registrar issues a certificate called registration
certificate to the firm
IMPORTANCE OF PARTNERSHIP DEED

• It controls and monitors the rights, responsibilities and liabilities

of all the partners
• Avoids dispute between the partners.
• Avoids confusion on profit and loss distribution ratio among the
partners.
• Individual partner’s responsibilities are mentioned clearly.
• Partnership deed also defines a remuneration or salary of the
partners and working partners. However, interest is paid to
each partner who has invested capital in the business.
DISSOLUTION OF FIRM

• In case of dissolution of partnership, the business of the firm does not

come to an end but there is a new agreement between the remaining
partners
• But in case of dissolution of firm, the business of the firm is closed up
• In brief, the dissolution of the partnership does not imply the
dissolution of firm
• But the dissolution of firm implies dissolution of partnership also
1. Dissolution by agreement
2. Compulsory dissolution
3. Dissolution due to contingencies
4. Dissolution by court
1. Dissolution by agreement: The partnership firm may be dissolved in accordance
with a contract already made between the partners
2. Compulsory dissolution: A firm stands compulsorily dissolved under the following
circumstances
(a) By the adjudication of all the partners or all the partners but one as insolvent or
(b) By the happening of any such event that makes the business unlawful
3. Dissolution due to contingencies: A firm stands dissolved on the happening of any
of the following contingencies
(c) On expiry of partnership period, if constituted for a fixed period
(d) On completion of the firm’s venture for which the firm was formed
(e) On the death of a partner
(f) On the adjudication of a partner as an insolvent
4. Dissolution by court: Under any of the following cases, a court may order the
dissolution of a firm
(a) Any partner has become of unsound mine
(b) Any partner has become permanently incapable of performing his duties as a partner
(c) A partner’s misconduct is likely to affect prejudicially the business of the firm
(d) A partner willfully commits breach of the partnership agreement
(e) A partner transfers his interest in the firm, but unauthorized to a third party
(f) The business of the firm can be carried on at loss only
(g) It is just and equitable on the basis of any other reasonable ground, that the firm
should be dissolved
 SETTLEMENT ON ACCOUNT ON DISSOLUTION

• Settlement of accounts means the closure of all accounts in the books of the firm as the firm’s
business no longer exist.
• The procedure for the settlement of accounts after the dissolution of the firm is as follows
• The assets of the firm are disposed of and the amounts so realized are applied in the following manner

1. Payment of debts due to the third parties

2. Ratable payment of loans and advances made by the partners of the firm
3. Payment of partner’s capital
4. Payment of surplus if any to the partners in their profit sharing ratio
• The losses of the firm on dissolution have to be made up
1. First out of accumulated past profits
2. Then out of capitals of partners
3. Thereafter, out of contributions from the private estates of the partners in
their profit sharing ratios
The private property of the partner is to be used first to pay his private debts
and only the surplus, if any can be used to pay firm’s liabilities. Similarly, firm’s
assets are first used to pay firm’s liabilities. Only surplus can be used to pay the
partner’s private liabilities
TYPES OF PARTNERSHIPS

• A partnership is divided into different types depending on the state and where the business operates.
Here are some general aspects of the three most common types of partnerships.
General Partnership
• A general partnership comprises two or more owners to run a business. In this partnership, each
partner represents the firm with equal right. All partners can participate in management activities,
decision making, and have the right to control the business. Similarly, profits, debts, and liabilities are
equally shared and divided equally.
• In other words, the general partnership definition can be stated as those partnerships where rights
and responsibilities are shared equally in terms of management and decision making. Each partner
should take full responsibility for the debts and liability incurred by the other partner. If one partner is
sued, all the other partners are considered accountable. The creditor or court will hold the partner’s
personal assets. Therefore, most of the partners do not opt for this partnership.
Limited Partnership
• In this partnership, includes both the general and limited partners. The general
partner has unlimited liability, manages the business and the other limited
partners. Limited partners have limited control over the business (limited to his
investment). They are not associated with the everyday operations of the firm.
• In most of the cases, the limited partners only invest and take a profit share. They
do not have any interest in participating in management or decision making. This
non-involvement means they do not have the right to compensate the
partnership losses from their income tax return
Limited Liability Partnership
• In Limited Liability Partnership (LLP), all the partners have limited liability. Each
partner is guarded against other partners legal and financial mistakes. A limited
liability partnership is almost similar to a Limited Liability Company (LLC) but
different from a limited partnership or a general partnership.
Partnership at Will
• Partnership at Will can be defined as when there is no clause
mentioned about the expiration of a partnership firm. Under section 7
of the Indian Partnership Act 1932, the two conditions that have to be
fulfilled by a firm to become a Partnership at Will are:
• The partnership agreement should have not any fixed expiration date.
• No particular determination of the partnership should be mentioned.
• Therefore, if the duration and determination are mentioned in the
agreement, then it is not a partnership at will. Also, initially, if the firm
had a fixed expiration date, but the operation of the firm continues
beyond the mentioned date that it will be considered as a partnership
at will.
COMPANY

• Company is an artificial person created by the law that has an

existence separate and apart from its owners
• It has a distinctive name, a common seal and perpetual succession of
members
• It can sue and sued in its own name
MAIN FEATURES OF A COMPANY

• Artificial legal person: A company is an artificial legal person created

by law. Like a person, it can enter into contracts in its own name and
likewise may sue and be sued in its own name
• Separate legal entity: A company has a distinct entity separate from
its members or shareholders. Therefore, a shareholder of the company
can enter into contract with the company. He/she can sue the company
and sued by the company
• Common seal: Being an artificial person, company cannot sign the
documents. Hence it uses a common seal on which its name is
engraved. Putting a common seal on papers relating to company’s
transaction makes them binding on the company
• Perpetual existence: Unlike partnership, the existence of a company
is not affected by the death, lunancy, insolvency or retirement of its
members or directors. This is because the company enjoys a separate
legal existence from that of its members. It is said members may
come, members may go but the company goes forever. It is created by
law and is dissolved by law itself
• Limited liability: The liability of the members of a company is
normally limited to the amount of shares held or guarantee given by
them
• Transferability of shares: The member of a public limited company
can sell his shares to others without the consent of other shareholders.
He has to follow the procedure laid down in the companies act for
transferring his shares. However, there are restrictions for transferring
shares to others in case of a private limited company
• Separation of ownership from management: The shareholders i.e, owners being
scattered all over the country give right the directors to manage the affairs of the
company. The directors are the representatives of the shareholders. Thus ownership
is separated from management
• Number of members: In case of public limited company, the minimum number is
seven and there is no maximum limit. But for a private limited company, the
minimum number of members is two and the maximum number is fifty
LIMITED COMPANY

• A limited company is a type of business structure where company has a legal

identity of its own separate from its owners (share holders)
• It keeps the business finance separate from the owners personal finance
• It refers to a legal structure that ensures the liability of company owners (share
holders) is limited to their stake in the company by the way of investment
• Therefore, if the company experience financial distress because of the normal
business activity, the personal asset of shareholders will not be at risk of being
seized by creditors
• It is able to own assets and any profit it make after tax
• A limited company can enter into contracts on its own
• Naming convention for limited company
• In UK, the company name is followed by Ltd
CLASSIFICATION OF LIMITED COMPANY

Limited company can be

• Private limited company
• Public limited company
PRIVATE LIMITED COMPANY

• Limit the number of its members or shareholders to 50

• Prohibits any invitation to the public to subscribe the shares or
debentures of the company
• Restricts the right to transfer the shares if any
PUBLIC LIMITED COMPANY

• It places no restriction on the transfer of shares

• No limit on the maximum number of members
• It invite the public to subscribe for its shares and debentures and pubic deposits
• Public limited companies must be formed with a minimum amount of share capital
• In line with the Companies Act 2006, it must allot shares with a combined nominal
value of at least £50,000
• Minimum number of directors needed is 3
• The minimum number of members is seven and there is no maximum limit
PRIVATE LIMITED COMPANY

1. Restricts the right to transfer shares

2. Limits number of members to fifty
3. Prohibits any invitation to the public to subscribe for the shares or the
debentures of the company
DIFFERENCE BETWEEN PRIVATE LIMITED AND PUBIC LIMITED COMPANY
COOPERATIVE

• Cooperative is another form of business ownership

• The cooperative form of organisation is based on
the philosophy of self help and mutual help
• A cooperative is defined as an autonomous
association of persons united voluntarily to meet
their common economic, social and cultural needs
and aspirations through a jointly owned and
democratically controlled enterprise
• A cooperative organisation need to be registered
with the registrar of cooperative societies of the
state in which the society’s registered office is
located
• It should have minimum two members and no limit
for maximum number of members
• The members are the owners
• They contribute capital to the organisation and
get dividends
• The liability of the members is limited
• The managing committee elected by the
members in the annual general meeting manages
the affairs of the cooperative organisation
MAIN FEATURES

1. Voluntary organisation
2. Democratic management
3. Service motive
4. Capital and return thereon
5. Government control
6. Distribution of surplus
• Voluntary organisation: cooperative organisation is a voluntary
association of persons desirous of pursuing a common objective. They
can come and leave the organisation at their own will without any
coercion and intimidation
• Democratic management: The management of a cooperative
organisation is vested in the hands of the managing committee elected
by the members on the basis of one member, one vote irrespective of
the number of shares held by any member. The general body of the
members lays down the broad framework within which the managing
committee has to function. Democracy is thus the keynote of the
management of a cooperative society
• Service motive: one basic feature which distinguishes a cooperative
organisation from other forms of business ownership is that the primary
objective of a cooperative society is to render services to its members
rather than to earn profits
• Capital and return thereon: the capital is procured from its members in
the form of share capital. A member can subscribe subject to a
maximum of 10% of total share capital or Rs. 1000 whichever is higher.
Shares cannot be transferred but surrendered to the organisation. The
rate of dividends paid to the members per share holders is restricted to
9% as per the cooperative societies act 1912
• Government control: In India, the activities of the cooperative societies
are regulated by the cooperative societies act and state cooperative
societies act. Cooperative societies are required to submit their annual
report and accounts to the registrar of cooperatives
• Distribution of surplus: After giving dividends to the members, the
surplus of profits if any is distributed among the members in proportion
of the business they have done with the cooperative society.
ADVANTAGES

1. Easy formation
2. Limited liability
3. Perpetual existence
4. Social service
5. Open membership
6. Tax advantage
7. State assistance
8. Democratic management
• Easy formation: compared to the formation of a company, formation of
cooperative society is easy. Any ten adult persons can voluntarily form
themselves into an association and get it registered with the registrar of
cooperatives. Formation of cooperative society also does not involve long and
complicated legal formalities
• Limited liability: Like company form of ownership, the liability of the members
is limited to the extent of their capital in the cooperative societies
• Perpetual existence: A cooperative society has a separate legal entity. Hence
the death, insolvency, retirement, lunancy etc of the members do not affect the
perpetual existence of a cooperative society
• Social service: The basic philosophy of cooperatives is self help and mutual
help. Thus cooperatives foster fellow feeling among their members and
inculcate moral values in them for a better living
• Open membership: The membership of cooperative societies is open to all
irrespective of caste, colour, creed and economic status. There is no limit on
maximum members
• Tax advantage: Unlike other three forms of business ownership, a cooperative
society is exempted from income tax and surcharge on its earnings up to certain
limit. Besides, it is also exempted from stamp duty and registration fee
• State assistance: Government has adopted cooperatives as an
effective instrument of socio economic change. Hence, the Government
offers a number of grants, loans and financial assistance to the
cooperative societies to make their working more effective
• Democratic management: The management of cooperative society
is entrusted to the management committee duly elected by the basis of
one member one vote irrespective of the number of shares held by
them. The proxy is not allowed in cooperative societies. Thus
management in cooperative is democratic
DISADVANTAGES

• Lack of secrecy
• Lack of business Acumen
• Lack of interest
• Corruption
• Lack of mutual interest
• Lack of secrecy: A cooperative society has to submit its annual
reports and accounts with the registrar of cooperative societies. Hence
it become quite difficult for it to maintain the secrecy of the business
affairs
• Lack of business Acumen: The member of cooperative societies
generally lack business acumen. When such members become the
members of the board of directors, the affairs of the society are
expectedly not conducted efficiently. These also cannot employ the
professional managers because it is neither compatable with their
avowed ends nor the limited resources allow for the same
• Lack of interest: The paid office bearers of cooperative societies do not take interest in
the functioning of the societies due to the absence of profit motive. Business success
requires sustained efforts over a period of time, which however does not exist in many
cooperatives. As a result, the cooperatives become inactive and come to a grinding halt
• Corruption: In a way, lack of profit motive breeds fraud and corruptions in the
management. This is reflected in misappropriations of funds by officials for their personal
gains
• Lack of mutual interest: The success of a cooperative society depend upon its
members utmost trust to each other. However all members are not found imbued with a
spirit of co-operation. Absence of such spirit breeds mutual rivalries among the members.
Influential members tend to dominate in the society’s affairs
FORMATION OF A CO-OPERATIVE
SOCIETY
• A co-operative society must be formed under the Co-
operative Societies Act, 1912 or under the relevant state
co-operative society’s law.
• A co-operative society can be formed by alteast 10 adult
members.
• The basic idea is that all the persons intending to form a
society should have some common objectives to achieve
The application for forming a society must have the following
information:
(a) Name and address of the society.
(b) Aims and objectives of the society.
(c) Names and addresses of members of the society.
(d) Share capital and its division.
(e) Mode of admitting new members.
(f) A copy of the bye laws of the society.
• The required documents are filed with the Registrar of
Societies.
• The Registrar scrutinizes the documents, if these are as per
requirements then the society’s name is entered in the
register.
• A certificate of registration is also issued to the society.
• The society will become a corporate body from the date
mentioned in the certificate.
SOURCE OF FINANCE OF COOPERATIVE

Co-operative obtains its finance from:

Internal
• Members, who purchase shares, make loans to or who
open deposit (savings) accounts with the Co-operative
• Returns from investments, where the Society gains from
putting its funds into shares of other organizations, unit
trusts, bonds, sale of assets, term accounts and profits
from its sales and services.
External
• External funding such as loans and grants from
International agencies, commercial banks,
Government' etc.
SMALL ENTERPRISES

• Small and large enterprises are two legs of industrialization process of a country
• Small enterprises are given an important place in the framework of Indian planning
since beginning, both for economic and ideological reason
• Small sector has now emerged as a dynamic and vibrant sector for Indian economy in
the recent years
• Small enterprises popularly known as small scale industry (SSI)
• The definition for small scale industry varies from one country to another, from one
time to another in the same country depending on the pattern and stage of
development, Government policy and administrative set up of the particular country
• The Fiscal commission, in 1950 for the first time defined small scale
industry as one which is operated with hired labour usually 10 to 50
hands
• In order to promote small scale industries in the Government of India
set up the central small scale industries organisation and small scale
industries board (SSIB) in 1954-55
• The SSI Board at its first meeting held on Jan 5th and 6th 1955 defined
small scale industry as a unit of employing less than 50 employees, if
using power and less than 100 employees without the use of power
and a capital asset not exceeding 5 lakhs
DEFINITION OF SMALL SCALE INDUSTRIES
• An ancillary unit is one which sells not less than 50% of its
manufactures to one or more industrial units
• For small scale industries, the planning commission of India uses the
term village and small scale industries (VSI). These include the modern
small scale industry, and the traditional cottage and house hold
industries
TYPES OF SMALL SCALE INDUSTRIES

Manufacturing/Processing/Assembling industries
• Manufacturing/Processing/Assembling industries manufacture consumable goods. Examples
include power looms, food and beverage processing units, engineering units, etc.
Ancillary Industries
• Ancillary industries are feeder industries that manufacture and supply intermediate goods to
other manufacturers. Examples include nuts and bolts manufacturing, electronic components,
parts, components, sub-assemblies, tooling, or even engines for industries like electronics,
automobiles, medical, etc.
Service Industries
• Service-based industries are the ones that offer services. Examples include tourism, finance,
fitness, beauty and wellness, mechanical repair, media and entertainment, design, etc.
EXAMPLES OF SMALL-SCALE INDUSTRIES

• Candle & Wax Product Making

• Spices manufacturing
• Fruit juice extraction, processing, and packaging
• Pickles and Papad
• Bakery and Chocolates
• Soap Production
• Small toys manufacturing
• Handloom and Handicrafts
• Paper packaging
• Stationery
• Leather product manufacturing
• Beauty parlors
ELIGIBILITY FOR SMALL-SCALE
INDUSTRIES
• As per the Micro, Small, and Medium Enterprises Development
(MSMED) Act, 2006, small-scale industries’ classification depends on
capital investments in machines and equipment. These investments
are specified for both manufacturing-oriented units as well as service-
oriented units.
• The level of investment required is –
GETTING SSI REGISTRATION IN INDIA

• The SSI registration process varies from state to state.

• Note that most states now follow significant major steps in SSI
registration
• Step 1: Provisional SSI Registration
• Businesses must first apply for the Provisional SSI Registration Certificate (PRC) during their pre-
operative period at the Ministry of Micro, small, and Medium Enterprises. PRC helps businesses obtain –
• Term loans
• Working capital from banks under priority sector lending
• Facilities for accommodation, land, other approvals, etc.
• Necessary NOCs and clearances from regulatory authorities such as Pollution Control Board, Labour
Regulations, etc.
• A business can apply for provisional SSI registration anytime. These registrations are valid for five
years. If the entrepreneur cannot set up their unit in this period, s/he needs to make a new application
for provisional registration at the end of five years.
• Step 2: Start the Business
• The provisional SSI registration certificate allows entrepreneurs to start
any activity or production in their business units.
• Step 3: Permanent SSI Registration
• After the business commences production or activity, it must apply and
obtain permanent SSI registration.
BENEFITS OF REGISTERING SMALL-SCALE INDUSTRIES

Small-scale businesses get some benefits from the central/state governments, as listed
below –
• Priority sector lending or a lower rate of interest
• Excise exclusion
• Exemption from direct tax laws
• Statutory help; for example, the reservation and Interest on Delayed Payments Act.
• specific facilities and incentives UTs and states offer for the SSIs, such as subsidies
and sponsorships, reduced power tariffs, rebates on capital investments, etc.
OBJECTIVES OF SMALL-SCALE
INDUSTRIES
Some of the objectives of small-scale industries include the following –
• Create employment opportunities
• Contribute to developing rural and less developed areas, and reduce regional
imbalances
• Efficiently utilize unexploited natural resources.
• Improve the quality of living in less privileged societies
• Ensure equal distribution of income and wealth
• Empower the rural population, particularly women
• Produce better quality products at lower costs
CHARACTERISTICS OF SMALL-SCALE INDUSTRIES

• Listed below are some of the characteristics of the small-scale industries that set them apart from
large-scale industries.
Ownership
• Usually, there is single ownership of the SSIs, which could be either a sole proprietorship or a
partnership.
Management
• Generally, the management and the control are with the owner/s. They are involved in the daily
tasks and management within the enterprise.
• The availability of resources determines less Dependence on Tech Everything, but, in general, it can
be said that, given the scale at which it is planned to work, the level of technology to be applied is
fundamental, and this determines that the equipment is also simple and therefore low cost.
• Flexibility
• SSIs are flexible in the dynamic business environment. They adapt quickly in
case of amendments or emergencies.
• Local Reach
• The zone of operations for SSIs is restricted, enabling them to fulfill their
local/regional demands.
• Resources Utilization
• SSIs utilize local and natural resources that are readily available while ensuring
minimum wastage.
ROLE OF SMALL-SCALE INDUSTRIES IN THE INDIAN ECONOMY

As discussed above, SSIs have been actively contributing towards the growth of the Indian economy; let’s see
how –
Employment
• SSIs are a significant source of employment in countries like ours. Since they are not heavily dependent on
technology and resources, they pose demands for manual labor and a workforce for their production
activities.
Total Production
• These enterprises account for almost 40% of India’s total production of goods and services. They have been
contributing to the growth of the Indian economy.
Make in India
• SSIs use local and regional resources and thus are the perfect examples of the Make in India initiative by
the Government of India. They aim to produce products locally and sell them globally.
Export Contribution
• The demand for locally made products is at an all-time high, and in recent years, the global market has also
posed demands for such products. This has made small-scale industries upgrade their quality and quantities
and add to the exports. These industries manufacture or produce nearly half of the goods exported from India.
Public Welfare
• These industries have an opportunity to earn wealth and create employment. SSIs are also essential for the
social growth and development of our country.
Scope for Growth
• SSIs are the perfect base for medium and then Large Scale Industries (LSI) growth. These businesses promote
the development and growth of entrepreneurs. Given the low investments and use of simple technologies and
local resources to meet local demands, India has seen the growth of several new SSIs, thereby creating scope
for the growth and development of LSI.
Conclusion
• The local marketplace of India is growing rapidly and is going global.
• Small-scale industries have contributed towards nation-building through
effective business planning, and more and more new brains are exploring
opportunities in this segment.
• Online marketplaces like Amazon are actively promoting local brands, and this
has also helped them to reach households in a concise time.
• Aspiring entrepreneurs can also benefit from the aid offered by the Indian
government and develop strategic plans to tap the local markets.
LARGE SCALE INDUSTRIES

• There are different forms of business organisations ranging from a sole proprietorship to large
scale businesses that employ over a thousand employees. Based on the scale of the business,
various classifications can be done, such as small scale industries, large scale industries, public
enterprises and multinational corporations.
• What are Large Scale Industries?
• Large scale industries are referred to as those industries that are having huge infrastructure, raw
material, high manpower requirements and large capital requirements. Those organisations
having a fixed asset of more than 10 crore rupees are considered to be large scale industries.
• The growth of the economy is very much dependent on these industries. Such industries work
towards bringing in foreign reserves, generating employment opportunities and paving the way
for economic growth.
LARGE SCALE INDUSTRIES IN INDIA

• Large scale industries in India can be categorised into the following types of industries:
• 1. Iron and Steel Industry
• 2. Automobile Industry
• 3.Textile Industry
• 4.Telecommunication Industry
• 5. Information Technology Industry
• 6. Petroleum and Natural Gas Industry
• 7. Silk Industry
• 8. Fertiliser Industry
• 9. Jute Industry
• 10. Paper Industry
• 11. Cement Industry
 ADVANTAGES OF LARGE SCALE INDUSTRIES

1. Large scale industries use the latest machinery and technology, which helps in improving the production. Due to large scale production, the
companies benefit as well as it is beneficial for the economy as a whole.
2. Large scale industries help in the development of industries in the economy, which is essential for industrialisation.
3. Large scale industries require skilled workers and therefore, the development of large scale industries help in the development of a skilled
workforce in the country.
4. Large scale industries require large amounts of raw materials, which opens up employment opportunities in the related sectors.
5. As large scale industries are involved in large scale production, it provides an opportunity to reduce the cost of goods and services as these
are produced in bulk.
6. Large scale industries help in the development of small scale industries, as the requirement of items cannot be met only by a single industry.
Hence, small scale industries are required to produce the ancillary products and therefore small scale industries thrive on the growth of large
scale industries.
7. Large scale industries can incur expenses required for research and development as they have a high influx of capital. Such research will help
in generating more profits in future.
8. Large scale industries also help improve the quality of life of its employees by providing them with adequate remuneration and other benefits.
SMALL AND MIDSIZE ENTERPRISE (SME)

• What Are Small and Midsize Enterprises (SMEs)?

• Small and midsize enterprises (SMEs) are businesses that maintain
revenues, assets, or a number of employees below a certain threshold.
Each country has its own definition of what constitutes a small and
medium-size enterprise. Certain size criteria must be met, and
occasionally, the industry in which the company operates is taken into
account as well.
•Small and midsize enterprises (SMEs) are businesses that have revenues, assets, or a number of employees
below a certain threshold.

•Each country has its own definition of what constitutes a small and medium-size enterprise.

•Each country may also set different guidelines across industries to define what a small business is across
sectors.

• SMEs play an important role in an economy, employing vast numbers of people and helping to shape
innovation.

Governments regularly offer incentives, including favorable tax treatment and better access to loans, to help
keep SMEs in business
• What Is the Role of SMEs in an Economy?
• Though small, SMEs play an important role in an economy. They
outnumber large firms, employ vast numbers of people, and are
generally entrepreneurial in nature, helping to shape innovation.
• Small and midsize enterprises can exist in almost any industry,
although they are more likely to reside within industries requiring fewer
employees and smaller upfront capital investments. Common types of
SMEs include legal firms, dental offices, restaurants, and bars.
• SMEs are segregated from large, multinational companies because they
fundamentally operate differently. Large, complex firms may require
advanced ERP systems—for accounting, supply chain management and
financial reporting, interconnectivity across offices around the world—
or deeper organizational processes. SMEs, on the other hand, may
require fewer systems given their narrower scope of operations.
Small businesses also have distinct advantages over larger companies:
• SMEs can often operate more flexibly. Large companies with broader processes
touching more employees may find it more difficult to act as nimbly.
• SMEs often garner a stronger sense of community. Slogans such as "shop local"
are geared towards supporting SMEs that don't have branches across the nation.
• SMEs are more likely to financially support their own community. Instead of
collecting revenue and investing it in a new store across the country, SMEs are
more likely to remain local, sustain local business, contribute local tax dollars,
and buy from nearby suppliers.
• SMEs may be engrained with a rich history. Larger, complex companies may
have a long history as well (especially if they've been financial successful).
However, SMEs are more likely to carry family tradition, preserve how
generations have done things, and pass down the family business
• SMEs may have a narrower, more direct focus than larger businesses. Think of
Apple, for example. Developing iPhones, iPads, Macs, Apple Watches,
accessories, and streaming services requires the staff to support each of these
departments. But an SME with limited staff must limit the scope of what it offers.
Instead of attempting to have a broad market presence, successful SMEs often
deeply integrate themselves into a smaller target market.
Government incentives
• Life as a small and midsize enterprise isn’t always easy. These businesses generally
struggle to attract capital to fund their endeavors and often have difficulty paying
taxes and meeting regulatory compliance obligations. Governments recognize the
importance of SMEs to their economies and regularly offer incentives, including
favorable tax treatment and better access to loans, to help keep SMEs in business.
Types of loans include:
• loans that guarantee portions of the total amount, cap interest rates, and limit fees
• loans that offer fixed-rate financing over a longer duration for the purchase or repair
of assets such as real estate or equipment