Unit-II

Types of Business StructureType of Structure No of People as

ownersRegistration process

Liability Continuity

Sole Proprietorship Single Not Required Unlimited Ceases if the owner dies

Partnership More than Two Partnership Act 1932

Unlimited Ceases if the partner mutually agree

Public Limited Company Min : 7Max: unlimited

Registrar of Companies (ROC)

Limited Perpetual Existence

Private Limited Company

Min:2Max:50

Registrar of Companies (ROC)

Limited Perpetual Existence

Sole Proprietorship

• Sole proprietorship is a business organization in the name of

particular individual itself. This has a disadvantage as it does not get

the recognition in the market, from point of view of funding and

investment. Also, markets show less faith in it because there is no

regulatory body that regulates its functioning like in the case of

Companies

SOLE TRADER

Nature of the organization: it is the simplest form of business

organization.

Governing law: there is less legislation to worry about than with other

business organizations.

Establishment procedure: establishment is very simple, involving

more practical problems (such as finding a place to work from) than

legal considerations.

Sole Trader

Finance: the ease of raising capital will generally be determined

by the trader's personal credit.

Continuity of existence: the business is tied to the trader and so

dies with them.

Limitation of liability: the trader is personally liable for the debts

of the business.

Control of the organization: the trade owns and operates the

business and makes all the decisions.

Partnership

Partnership is yet another structure, which can be used for making investments

in India. Partnership is created by an agreement entered between two or more

parties (individuals/ companies) to share the profits of a joint business. Such an

agreement is called the ‘Deed of Partnership’.

Partnership law in India is governed by the Indian Partnership Act 1932.

Foreign entities and foreign individual investors can form partnerships in India.

Registration of partnership is advisable as it confers certain legal rights upon the

partnerships and its partners.

Difference between public and private limited companies

Public Ltd; companies Liability : Limited liability

Min Number of Members:7

Max Number of Members: unlimited

Can issue shares to the public and can be

listed in the stock exchange.

Has the right to transfer the shares

Requires both certificates incorporation and

commencement

Private Ltd; Companies

Liability: Limited Liability

Min Number of members:2

Max Number of members:50

Cannot issue shares to the public and

cannot be listed in the stock exchange

Cannot transfer the shares

Requires certificate of incorporation only

Companies

• Indian companies can be divided into two basic categories: private

limited company and public limited company. A private limited

company is one which· Restricts its members’ right to transfer of

shares Limits the number of its members to fifty, and Prohibits

invitation to public to subscribe for its shares and debentures. A

public limited company is any company which is not private limited

company. Public limited companies whose shares are traded in the

stock exchange are called listed companies

Governing Documents

• The Companies Act 1956 contains all the rules and regulations for the

incorporation as well as functioning of the company. The basic

governing document for the company registered in India is the

Certificate of Incorporation, and Memorandum and Article of

Association, which should be printed and always be available at the

Registered office of the company as per the provisions of the

governing Act.

Forming a company

• Formation of a Company in India is governed by the Indian

Companies Act, 1956. The procedure for formation of a company is

as under: A suitable name is to be decided for the proposed company

Drawing up Memorandum of Association - Name of the Company - Main objects of the Company - Share Capital of the Company - Statement of liability of the members - State where registered office of the Company will be situated

Role of SME’s In Indian Economy

SME’s play a vital role in Indian Economic Growth.

40% share in industrial output, produce 8000 + value-added products.

Contribute 35% in direct Indian Exports

45% in the overall exports from India.

Role of SME’s In Indian Economy

Biggest employment-providing sector after agriculture.

Constitute 80% of total number of industrial enterprises

Forms backbone of industrial development

Their growth is higher than rate of growth of industry sector as a

whole, contributing 7% to our GDP

NUMBER OF ENTERPRISES IN MSME SECTOR

EMPLOYMENT IN MSME SECTOR

NATURE OF ACTIVITY

SECTOR (%)

Manufacturing/ Assembling/ Processing

66.67 %

Repairing & Maintenance 16.33 %

Services 17.00 %

TYPES OF MANAGEMENT/OWNERSHIP

No. of enterprises managed by

Male 86.17 %

Female 13.83 %

Total 100 %

TYPES OF ORGANIZATION

DISTRIBUTION BY TYPE OF ORGANISATION

Proprietary 90.36%

Partnership 3.85 %

Pvt. Company 2.69 %

Pub. Ltd. Company 0.53 %

Cooperatives 0.30 %

Others 2.27 %

MINISTRY OF MICRO,SMALL & MEDIUM ENTERPRISES

• Role of the Ministry of Micro, Small &Medium Enterprises

• The primary responsibility of promotion and development

of micro and small enterprises lies with the State

Governments.

MINISTRY OF MICRO,SMALL & MEDIUM ENTERPRISES

• The Government of India set up the Small Industries Development Organization

(SIDO) [now Office of the Development Commissioner (Micro, Small & Medium

Enterprises)] in 1954, a public sector enterprise called the National Small Industries

Corporation Limited(NSIC) in 1955, and enacted the K hadi and Village

Industries Commission Act in 1956. Establishment of K hadi and Village Industries

Commission (KVIC), Coir Board and Micro, Small & Medium Enterprises-

Development Institutes [formerly known as Small Industries Service Institutes

(SISIs)] in nearly every State followed.

MINISTRY OF MICRO,SMALL & MEDIUM ENTERPRISES

Besides, the Ministry runs three training institutes, namely, National Institute for

Micro, Small and Medium Enterprises (NIMSME), Hyderabad

National Institute for Entrepreneurship and Small Business

Development (NIESBUD), NOIDA, and

Indian Institute of Entrepreneurship (IIE), Guwahati, with the objective

of training and development of human resource relevant to small

industries as also entrepreneurship.

The Khadi & Village Industries Commission (KVIC),

• The Khadi & Village Industries Commission (KVIC), established

under the Khadi and Village Industries Commission Act, 1956 (61 of

1956),is a statutory organization engaged in promoting and

developing khadi and village industries for providing employment

opportunities in rural areas, thereby strengthening the rural economy.

The Commission is headed by full time Chairman and consists of 10

part-time Members.

The Khadi & Village Industries Commission (KVIC),

• The main functions of the KVIC are to plan, promote, organize and

assist in implementation of programmes /projects/schemes for

generation of employment opportunities through development of

khadi and village industries. Towards this end, it undertakes activities

like skill improvement, transfer of technology, research &

development marketing, etc. KVIC co-ordinates its activities through

State KVI boards, registered societies and cooperatives.

National Small Industries Corporation Limited (NSIC)

NSIC, established in 1955, is headed by Chairman-cum-Managing Director and managed by a Board of Directors.

The main function of the Corporation is to promote, aid and foster the growth of micro and small enterprises in the country, generally on commercial basis.

NSIC provides a variety of support services to micro and small enterprises catering to their different requirements in the areas of raw material procurement; product marketing; credit rating; acquisition of technologies; adoption of modern management practices, etc.

Salient Features of Micro, Small &Medium Enterprises Development

(MSMED) Act, 2006

• Classification of Enterprises

The earlier concept of ‘Industries’ has been changed to ‘Enterprises’.

• Enterprises have been classified broadly into:

(i) Enterprises engaged in the manufacture/production of goods pertaining to any industry; and

(ii) Enterprises engaged in providing/rendering of services Manufacturing Enterprises have been defined in terms of investment in plant and machinery (excluding land &buildings)and further classified into:

Classification of Enterprises

• Micro Enterprises – investment up to Rs. 25 lakh.

• Small Enterprises – investment above Rs. 25 lakh and upto Rs. 5 crore

• Medium Enterprises – investment above Rs. 5 crore and up to Rs. 10

crore.

Classification of Enterprises

• Service Enterprises have been defined in terms of their investment in equipment (excluding land & buildings) and further

classified into:

• - Micro Enterprises – investment up to Rs. 10 lakh.

• - Small Enterprises – investment above Rs. 10 lakh and upto Rs. 2 crore

• Medium Enterprises – investment above Rs. 2 crore and up to Rs. 5

crore.

Institutions Supporting Small Business Enterprises

Institutions Supporting Small-scale Industries

CENTRAL LEVEL• SSI BOARD

• KVIC

• SIDO

• NSIC

• NSTEDB

• NPC

• NISIET

• NIESBUD

• IIE

• EDI

SSIs

STATE LEVEL

• DIs

• DICs

• SFCs

• SIDCs/SIICs

• SSIDCs

OTHERS

• Industry Association

• Non Governmental Organizations

• R & D Laboratories

Small-scale Industries Board (SSI Board)

• Constituted in 1954 to facilitate the coordination and inter-institutional linkages for the development of SSI sector

• The Board is an apex advisory body constituted to render advice to the government on all issues pertaining to the SSI sector

• The office of the Development Commissioner (Small-Scale Industry) serves as the secretariat for the board

• The Board operates broadly in the following areas: - Policies & programs - Development of industries in specific region like Northeast - Ancillary development, quality improvement, mktg. assistance - Credit facilities, taxation and modernization

- Industrial sickness

Industries Association

CII : Confederation of Indian Industries

FICCI: Federation of Indian Chambers of Commerce and

Industry.

ASSOCHAM: Associated chambers of Commerce and

Industry of India.

Khadi and Village Industries Commission (KVIC)

• Statutory body created by an act of Parliament

• It is charged with planning, promotion, organization and implementation of the program for the development of Khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development

• KVIC’s functions also comprise building up a reserve of raw materials and implements for supply to producers, creation of common service facilities for processing of raw materials and provision of marketing of KVIC products

• KVIC is entrusted with the task of providing financial assistance to institutions or persons engaged in the development and operation of Khadi and village industries and guide them through supply of designs, prototypes and other technical information

National Small Industries Corporation Ltd. (NSIC)

• Established in 1955 by GOI with the main objectives to promote, aid and foster the growth of SSIs in the country

• Over four decades of transition and growth in the SSI sector, NSIC has provided strength through a progressive attitude of modernization, upgradation of technology, quality consciousness, strengthening linkages with large and medium-scale enterprise and boosting exports of products from small enterprises

• Main services provided by NSIC are: - Machinery and Equipment (Hire Purchase / Lease scheme) - Financial Assistance Scheme - Assistance for Procurement of Raw Material - Government Store Purchase Program - Technology Transfer Centre (TTC) - Marketing Assistance

Schemes of NSIC

• Raw Material Distribution:

The core business activity is raw material distribution and marketing

assistance to the MSMES.

Entering into arrangements with bulk manufacturers of industrial raw

materials so as to enable the MSMEs to avail economies of scale.

Types of Materials

Iron and steel

Aluminum

Paraffin wax

Coal

HDPE (high density polythene )

LDPE (Low density polythene)

Government Stores Purchase Program

• Under this scheme NSIC registers micro and small enterprises and fixes their monetary limit as per their capacity so as to empower them

for participation in Government tenders.• The enterprises registered under this scheme get the following

facilities: Issue of tender sets free of cost Advance intimation of tenders issued by DGS&D(Director General of

Supplies and Disposals)

Government Stores Purchase Program

Exemption from payment of earnest money

Consortia and Tender Marketing:

MSMEs in their individual capacity face problems to procure and

execute large orders, which inhibit and restrict their growth. NSIC

accordingly adopts consortia approach and forms consortia of units

manufacturing similar products thereby easing out marketing

problems of small enterprises.

Consortia of Units

• NSIC explores the market and participates in the tenders on behalf of

then consortia members to secure orders for bulk quantities. On

receipt of the bulk orders it distributes the same amongst consortia

members in accordance to their production capacity.

Trade fairs and exhibitions

• To showcase the competencies of MSMEs and to capture global

market opportunities, NSIC participates in select international and

national exhibitions and trade fairs. NSIC facilitates the participation

of MSMEs by providing built up space at concessional rates.

Buyer seller meets and marketing campaigns

• NSIC organizes buyers-sellers meets to bring bulk buyers

Government departments and MSMEs together at one platform. Bulk

and departmental buyers such as the railways , defense and

communication departments are invited to participate in buyer seller

meets.

Credit Support

• NSIC facilitates procurement of raw material from the bulk

manufacturers for a period of 90 days at a very competitive

rates of 9.5% to 10.75%.

Support Services

• Performance and credit rating scheme for Micro and small

enterprises:

• NSIC has been implementing the performance and credit rating

scheme for the MSMEs on behalf of the government. The rating is

been carried through agencies like CRISIL ( Credit Rating

Information Services of India Limited)

District Industries Centers

District Industries Centers were established in 1978 to serve as the

nodal agency in the Districts to assist the entrepreneurs for

establishment of the Industries.

The District Industries Centers are entrusted with the responsibility

of providing all approvals/ clearances needed for setting up an

Industry under Single Window.

Single Window Act:

• Government have enacted “Industrial Single Window

Clearance Act” in 2002 for speedy processing and issue of

various approvals/ clearances/ permissions required for

setting up of an Industrial undertaking and also to create an

investment friendly environment in the State.

Single Window Act:

• Since beginning of the Single Window Act, 70,302 clearances were

issued under Single window in respect of 40,129 units (Micro, Small,

Medium and Large units) with a proposed investment of Rs.2,32,958

crore

Function of DIC Commisionerate

To Assist and guide the entrepreneurs for promotion and

setting up of industrial units.

To enable the entrepreneur to get different industrial

approvals and clearances from various departments /

agencies at a single point.

Function of DIC Commisionerate

• To register Small Industry/ Tiny industry/Small Scale Service and

Business Enterprises.

• Sanction of incentives to eligible industrial undertaking.

• To arrange financial assistance to educated unemployed youth from

Banks

• to set up their firms under Prime Minister's Rozgar Yojana Scheme

(selfemployment schem

Function of DIC Commisionerate

To provide marketing assistance to local industrial units.

To Rehabilitate Sick small industrial units.

To settle disputes arising due to non-receipt of payment to local SSI

suppliers from various purchasers especially Government

Departments by acting as arbitrator through the Industry Facilitation

Council.

Andhra Pradesh State Finance Corporation (APSFC)

• Andhra Pradesh State Financial Corporation [APSFC] is a term

lending Institution established in 1956 for promoting small and

medium scale industries in Andhra Pradesh under the provisions of

the State Financial Corporations Act, 1951.The corporation came into

existence on 1-11-1956 by merger of Andhra State Financial

Corporation and Hyderabad State Financial Corporation.

Milestone achievements of APSFC : 

So far sanctioned Rs.2,503 crores for 93,999 units in Andhra Pradesh

as on 31/03/2012.

Disbursed Rs.8,571 crores to 73,480 units - 70% to Tiny/SSI sector as

on 31/03/2012.

Recovered Rs.9,349 crores including interest since inception till

31/03/2012.\

Established unblemished repayment track record since inception

Milestone achievements of APSFC

.

Enjoying 60% of the market share in term lending in promoting First

Generation Entrepreneurs in Andhra Pradesh .

Generated direct and indirect employment to about 11 lakh persons

Objectives of APSFC

To industrialize the State through balanced regional development and

dispersal of industries

To support promotion and development of tiny, small and medium

scale industries and service sector units by extending need based

credit to them.

Nurtures entrepreneurship and encourages first generation

entrepreneurs

To act as a catalyst for generation of employment 

APSFC Functions

• Andhra Pradesh State Financial Corporation (APSFC) extends

financial assistance for setting up industrial units in Small & Medium

Scale, Service enterprises in the state of Andhra Pradesh. The

Corporation extends finance basically through two products the Term

Loans and the Working Capital Term Loans.

Small Industries Development Bank of India (SIDBI)

• Small Industries Development Bank of India (SIDBI), set up on April

2, 1990 under an Act of Indian Parliament, is the Principal Financial

Institution for the Promotion, Financing and Development of the

Micro, Small and Medium Enterprise (MSME) sector and for Co-

ordination of the functions of the institutions engaged in similar

activities.

Four basic objectives are set out in the SIDBI Charter.

Financing

Promotion

Development

Co-ordination

 

National Science and Technology Entrepreneurship Development Board (NSTEDB)

Established in 1982 by GOI, is an institutional mechanism to help promote

knowledge-driven and technology-intensive enterprises

Major objectives are:

- promote and develop high-end entrepreneurship for S&T manpower as well as self-

employment by utilizing S&T infrastructure and by using S&T methods

- facilitate and conduct various informational

services relating to promotion of entrepreneurship - network agencies of support

system, academic institutions and R&D organizations to foster self-employment

using S&T with special focus on backward areas - act as a policy advisory body

with regard to entrepreneurship

National Productivity Council (NPC)

Autonomous institution functioning under the overall supervision of the Ministry of Industry, GOI

Primary objective is to act as a catalyst in enhancing the productivity of all sectors of the economy,

including industry and agriculture

Administered by a tripartite Governing Council (GC) which has equal representation from the

government, industry and trade unions

Active in the field of consultancy and training and has a number of specialized divisions to provide tailor-

made solutions to agriculture and industry. These divisions, manned by trained consultants, deal with

issues related to industrial engineering, plant engineering, energy management, HRD, informal sector,

agriculture and so on

NPC is a member of the Asian Productivity Organization (APO), Tokyo, an umbrella body of all

productivity councils in Asian region

To channelize expertise of NPC to small-scale and informal sector, SIDBI has tied-up with NPC for

enhancing technology in small units

National Institute for Small Industry Extension and Training (NISIET)

Set up in early 1950s, NISIET acts an important resource and information centre for

small units and undertakes research and consultancy for small industry development

An autonomous arm of the Ministry of Small Scale Industries, the institute achieves

its objectives through training, consultancy, research and education, to extension

and information services

National Institute for Entrepreneurship and Small Business Development (NIESBUD)

NIESBUD is an autonomous body under the administrative control of the Office of the

DC(SSI)

NIESBUD established in 1983 by the Ministry of Industry, GOI, as an apex body for

coordinating and overseeing the activities of various institutions/agencies engaged in

Entrepreneurship Development particularly in the area of small industry and business

The policy, direction and guidance to the institute is provided by its Governing Council

whose chairman is the Minister of SSI.

Besides conducting national and international training programs, the institute undertakes

research studies, consultancy assignments, development of training aids, etc.

Other State-level agencies Extending Facilities for SSI Promotion

State Infrastructure Development Corporations

State Cooperative Banks Regional Rural Banks State Export Corporations Agro Industries Corporations Handloom and Handicrafts Corporations

Other Agencies

National Bank for

Agriculture and Rural

Development

(NABARD)

Set up in 1982, provide refinance assistance to State Cooperative Banks, Regional Rural Banks, and other approved institutions for all kinds of production and investment credit to SSIs, artisans, cottage and village industries, handicrafts and other allied activities. Helps SSI entrepreneurs to get loan for setting up SSIs in any part of the country

Housing and Urban Developme

nt Corporatio

n Ltd. (HUDCO)

Wholly owned company of GOI, incorporated Apr.1970, as a Pvt. Ltd. Co. and subsequently, converted into a Public Ltd. Co. in 1986. Primary objective is to provide assistance for urban, social sector infrastructure, and the creation of housing facility, of late, to create SSI infrastructure. Also extends assistance for the promotion of building material industries, besides imparting consultancy, training and technical in related matters.

Technical Consultanc

y Organizations (TCOs)

Set up by all-India financial institutions during 70s and 80s to cater to consultancy needs of SMEs and new entrepreneurs. Services include preparing project profiles and feasibility studies, undertaking industrial potential surveys, identifying potential entrepreneurs and provision of technical and management assistance to them, undertake market research and surveys for specific products, carrying out energy audit and energy conservatism assignment, project supervision, taking up assignments on a turnkey basis, undertaking export consultancy for EOU

End of Unit-II