Entrepreneurship Maurice

7/31/2019 Entrepreneurship Maurice

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Meaning of Small & Medium Enterprises

Small-scale industry comprise of a variety of undertaking. The definition of small scale

industry varies from one country to another and from one time to another in the same

country depending upon the pattern and stage of development, Government policy and

administrative set up of the particular country.

Definition of Small-scale Industry:

The term Small-scale industry has been defined in three ways:

1. Conventional definition: This includes cottage and handicraft industries which

employ traditional labour intensive methods to produce traditional products, largely

in village households. They employ none or mostly a few hired hands. The handloom

textile industry is an example. Though once famous, this sector has been steadily

declining.

2. Operational definition: This includes all those undertakings having an investment in

fixed assets in plant and machinery, whether held on ownership terms or by lease or

hire purchase, not exceeding `.60 Lakhs. Ancillary units and tiny units also come

under the umbrella of small scale industries.

A tiny unit is one whose investment in fixed assets in plant & machinery does

not exceed `.5 Lakhs.

An Ancillary Unit is one whose investment in fixed assets in plant &

machinery does not exceed `.75 Lakhs and is engaged in the manufacture of parts,

components, sub-assemblies, tooling or intermediate OR the rendering of services of

supplying 1/3 percent of their total service or production, as the case may be to

other units for production of other articles.

3. National Income Accounting definition: This includes all manufacturing and

processing activities, including maintaining and repair services, undertaken by both

household and non-household small-scale manufacturing units, which are not

registered under the Factories Act.

Different segments of SSIs:

1. Tiny Enterprises: A unit is treated as tiny enterprise where investment in plant and

machinery does not exceed `. 25 million, irrespective of the location of the unit.

2. Women Entrepreneurs Enterprises: An SSI unit/industry related service or business

enterprise, managed by one or more women entrepreneurs in proprietary concerns,

or in which she/they individually or jointly have a share capital of not less than 51 %

as Partners/Shareholders/Directors of Private Ltd. Company/Members of Co-Operative Society is treated as Women Entrepreneurs Enterprise.


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3. Small-Scale Service and Business Enterprises (SSSBEs): Enterprises rendering

industry-related service/business with investment up to `.0.5 million in fixed assets,

excluding land & building, are called SSSBEs.

4. Export Oriented Units(EOU): A unit with obligation to export at least 30 % of its

annual production by the end of third year of commencement of production and

having investment ceiling in fixed assets, plant and machinery upto `.30 million is

regarded as an EOU.

Types of Small-Scale Industries:

1. Manufacturing Industries: Industries producing complete articles for direct

consumption and also processing industries.

2. Feeder Industries: Industries specialising in certain types of products and services, e.g.

casting, welding, electro-plating, etc.3. Servicing Industries: Industries covering light repair shops necessary to maintain

mechanical equipments.

4. Ancillary to large industries producing parts and components and rendering services;

and

5. Mining or quarrying.

Characteristics of SMEs:

1. They are generally organised and run by individual entrepreneurs. Nowadays,

partnership and co-operative forms of organisations are being adopted for

promotion and growth of SMEs.

2. They are highly localised industries. Using local resources SMEs are decentralised

and dispersed to rural areas.

3. They require less capital. They are not capital-intensive.

4. They are fundamentally labour-intensive units facilitating greater use of manpower.

5. They involve the use of simple technology, intensive use of individual skill leading to

professional specialisation.

6. They cater to individual tastes and fashion and render personalised service toconsumers.

7. They are eligible for government assistance and patronage and also for concessional

finance by banks and financial institutions.

8. They can be easily established without much legal formalities.

9. They are flexible to a large extent. They are more susceptible to change and highly

reactive and receptive to socio-economic conditions.

10.They are free from red tapism and bureaucratic handicaps.

11.Compared to large units, SMEs have lesser gestation period i.e. the period after

which the return on investment starts.12.In most ofthe SMEs, the owner himself/herself is a manager also.


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Objectives of SMEs:

1. To provide increased employment opportunities.

2. To promote production of a large variety of goods especially consumer goods

through labour-intensive methods.3. To encourage the adoption of modern techniques in the unorganised traditional

sector of the industry.

4. To facilitate effective use of resource especially local resources to achieve local self-

sufficiency.

5. To encourage dispersal of industries all over the country covering small towns,

villages and economically lagging regions.

6. To bring backward areas too in the mainstream of national development.

7. To promote balanced regional development as regards industries in the whole

country.8. To ensure more equitable distribution of national income.

9. To encourage effective mobilisation of countrys untapped resources.

10.To create a climate for development of self-employed experts, professionals and

small entrepreneurs.

11.To improve the level of living of people in the country.

Advantages of SMEs:

1. They create more employment opportunities. They are labour intensive. They offer

scope for self-employment.

2. They require less capital. It is a boon to a country like India where capital is deficient.

3. Close supervision and control is facilitated.

4. There is a personal touch with the employees. This makes the business smooth and

prosperous.

5. There is a close and direct personal contact with the customers.

6. SMEs alone can satisfy individual tastes fully and offer personalised service to the

customers.

7. They help in reducing prices.

8. They help in balanced regional development.

9. It is possible to make necessary changes as and when required.

10.SMEs enjoy government support and patronage.

11.They facilitate equitable distribution of income and wealth.

12.They provide opportunities for creativity and experimentation.

13.They are generally based on local resources.

14.They are relatively more environmental friendly.


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`ROLE AND IMPORTANCE OF SMEs

1. Employment: SMEs use labour intensive techniques and thereby provideemployment on large scale. For every Rs. 1 lakh of fixed investment small scale

sector provides employment to 26 persons as against 4 persons in the large scale

sector. Small scale industries provide self-employment to artisans, technically

qualified persons and professionals. Small scale sector accounts for 75% of the total

employment in the industrial sector. More than 18 million persons are employed in

the small scale units in India.

2. Optimization of capital: Small scale firms require less capital per unit output and

provide quick returns on investment due to shorter gestation period. In a capital

scarce economy like India small scale sector can become a stabilizing force by

providing high output capital ratio and high employment capital ratio. Small scale

units help to mobilize small and scattered savings and channelize them into

industrial activities.

3. Balance regional development: Small scale industries promote decentralized

development of industries. They help to remove regional disparities by

industrializing rural and backward areas. Dispersal of small industries in rural and

semi-urban areas is the only means of balanced industrialization of all parts of the

country. Small scale industries help to reduce the problem of congestion, slums and

pollution in cities by providing employment and incomes in rural areas. They help to

improve the living of suburban and rural areas.

4. Mobilization of local resources: Small scale industries help to mobilize and use local

resources like small savings, entrepreneurial talent etc. which might otherwise

remain idle or unused. They help to perfect and promote traditional family skills and

handcrafts. These industries help in the growth of local entrepreneurs and self-

employment professionals in small towns and villages.

5. Export promotion:Small scale industries help in reducing pressure on the countrys

balance of payments in two ways. First they do not require imports of sophisticated

machinery or raw materials. They are now producing electro-medical equipments,

drugs etc. which were being imported earlier. Secondly, small scale industries earn

valuable foreign exchange through exports. There has been a substantial increase in

exports from the small scale sector. A significant feature has been rapid growth in

the exports of non-traditional items. Small scale sector contributes about 25% of

Indias total exports and 90% of non-traditional exports.


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6. Consumer surplus: Small scale industries now produce a wide range of mass

consumption items. Over 5000 products are being manufactured in the small scale

sector. By providing good of daily use on large scale, small scale industries serve as

an anti-inflationary force. About one half of the output of manufacturing sector inIndia comes from small scale and village industries.

7. Feeder to large scale industries: Small scale industries play a complementary role to

large scale sector. They provide parts, components, accessories to large scale

industries. They serve as ancillaries to large units.

8. Social advantage: Small scale sector contributes towards the development of a

socialistic pattern of society by reducing concentration of income and wealth. They

provide an honourable and independent living to people with limited resources.They facilitate wider participation of public in the process of development and

thereby serve the cause of democracy and self-government.

9. Share in industrial production: Small scale industries contribute more than one-half

of the total industrial production in India. About 5000 products are manufactured in

the small scale sector. These include several items of consumption such as T.V. sets,

hearing aids and industrial items.

10. Development of Entrepreneurship: Small scale units have helped to develop a class

of entrepreneur. These units help in self-employment and spirit of self-reliance in

the society. The development of small scale industries contributes to increase in per

capita income or economic development in various ways. It generates immediate

employment opportunities in relatively low capital investment, makes effective use

of untapped local resources, facilitates development of backward areas and weaker

section of society.

11. Important segment: The small scale industries contribute an important segment of

the Indian economy in terms of their contribution to the countrys industrial

production, exports, employment and creation of an entrepreneurial base. The

government established a separate ministry of small scale industries in September

2001.

12. Expansion of SSI sector and its share in industrial output: The number of units in

the SSI sector stood at 101.1 lakh in 2000-01. This number rose to 118.59 lakh in

2004-05. As far as output of units in the SSI sector is concerned, it was Rs. 2,61,297

crores in 2000-01 and this rose considerably to Rs. 4,18,263 crores in 2004-05.


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13. More efficiency: There are some studies which prove that small scale units are more

efficient than large scale units. One study on this issue was conducted in 1999 by the

SIDBI. It revealed that the small scale industries by investing only 7% to 15% of the

total manufacturing sectors capital contribute to nearly 1/5 of the total industrial

output and 35 to 40% of total employment in the industrial sector. An analysis ofproductivity shows that capital productivity was slightly higher in small scale

industries over the period 1980-81 to 1994-95.

14. Higher rate of growth: The small scale sector has maintained a higher rate of

growth than the overall industrial sector. The comparative growth rates of

production for both the sectors are given below.

Year Growth rate of SSI (%) Growth rate of overall

industrial sector

1999-2000 7.1 6.7

2000-2001 8.0 5.0

2001-2002 6.1 2.7

2002-2003 7.7 5.7

2003-2004 8.6 6.9

2004-2005 9.96 8.4

15. Equitable distribution of national income: SSIs ensure a more equitable distribution

of national income and wealth due to these reasons- i) the ownership of SSIs is more

widespread, and ii) they have a much larger employment potential.

16. Less industrial disputes: Large industries frequently face the problems of strikes,

lockouts, breakdown, tool down, workers resentment, sabotage etc. This does lead

to tensions and conflicts. In case of SSIs, the questions of disputes and disharmony

does not arise at all due to family labour and low expectations of workers.

17. Use of abundant natural resources: The north-eastern consisting of Assam,

Arunachal Pradesh, Manipur, Mizoram, Meghalaya, Nagaland, Tripura and Sikkim,has abundant natural resources and these resources can be harnessed for all-round

development of micro and small enterprises. The ministry of SSI is actively

promoting the development of small scale industries in the north-eastern region

through the programs and schemes implemented by its organization. SIDO has SISISs

at Gangtok, Guwahati, Imphal, Agartala, etc.

18. Contribution to industrial production: SSIs contribute more than one-half of the

total industrial production in our country. About 5000 products by small scale units.

This include many non-traditional items like T.V. sets, computers, hearing aids,


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chemicals, processed food, leather products, garments, sports goods and large

number of engineering goods.

19. Training and entrepreneurship development: It is one of the key elements for

development of small scale industries, particularly, the first generationentrepreneurs. The Indian institute of entrepreneurship (IIE), Guwahati, the National

institution to small industry extension training (NISIET) Hyderabad and the national

institute of entrepreneurship and small business development (NIESBUD), NOIDA

have been set up as national level institutions for training and entrepreneurship

development in the SSI sector. To promote and assist entrepreneurship development

in the country, the ministry implements two important schemes, namely.

Promotions of entrepreneurship development institutions (EDI) and scheme of

national entrepreneurship development board (NEDB).

20. Serves total causes: Small scale sector in India is contributing towards the social

goals of our society. It is reducing concentration of income and wealth in the

country. It provides independent living to people with limited resources. It provides

wider participation of public in the process of economic and social development.

Thus, it serves the cause of socialistic society, democracy, self-employment and self-

government.


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Policies Governing SMEs

India has built up perhaps one of the most elaborate development policy framework

and programme for the small-scale sector. The main aims of such policy framework are:

To encourage and facilitate the entry of new entrepreneurs in small sector.

To support the growth of small scale units.

To protect small firms from acute competition from large scale sector.

To solve the problems faced by the small-scale industries.

To encourage technology up gradation, productivity improvement and export

production in the small-scale sector.

Industrial Policy Framework:-

1. Industrial Policy Resolution, 1948:

a) This policy stressed the role of cottage and small-scale balanced

industrial development of the country.

b) It was stated that industries are particularly suited for theutilization of local creation of employment opportunities. The

primary responsibility for developing small industries by creating

infrastructure has been entrusted to State Government.

2. Industrial Policy resolution, 1956:

a) The policy stated that besides continuing the policy of supporting

cottage, village and small industries by differential taxation or

direct subsidies, the aim of the policy could be to ensure that

decentralized sector acquires sufficient vitality to be self-

supporting and its development is integrated with that of large

scale industry to achieve this goal 128 items were reserved for

exclusive production in the small-scale sector. The policy also

reserved 166 items for exclusive purchase by government from the

small scale sector.


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a. The policy stressed that its main thrust will be on effective promotion

of cottage and small industrial widely dispersed in rural areas and

small towns. It is the policy of the government that whatever can be

produced by small and cottage industries must only be so produced.

b. The policy classified small sector into three categories:

i. Cottage and household industries which provide self-employment

on a large scale.

ii. Tiny sector incorporating investment in industrial units in

machinery and equipment upto one lakhs and situated in towns

with a population of less than 50000 according to 1971 census.

iii. Small scale industries comprising industrial units with an

investment of upto 10 lakhs and in case of ancillary units with an

investment upto 15 lakhs.


The policy emphasized the need of promotion small-scale industries through

integrated industrial development and fostering complementarity between

large and small sectors. Following measures were specified in the policy:

a) Raising investment limits in :

Tiny unitsto Rs.2 lakhs,

Small unitsto Rs. 20 lakhs and

Ancillary unitsto Rs. 25 lakhs.

b) Nucleus plants in each industrially backward district replaced the

district industries centers. These were to concentrate on

assembling the products of SSIs and to produce inputs needed by

large number of small units.c) Reservation of items and marketing support for small industries

was to continue.

d) Availability of credit to growing SS units was continued.

e) Buffer stocks of critical inputs were to continued.

f) Agricultural base was to strengthen by providing preferential

treatment to agro- based industries.

g) An early warning system was to establish to avoid sickness and

take appropriate remedial measures.


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i. It raised the investment ceiling in plant and machinery for SSIs.

ii. It created central investment subsidy for this sector in rural and

backward areas. Also, assistance was granted to women

entrepreneurs for widening the entrepreneurial base.

iii. Reservation of items to be produced by SSIs was increased to 836.

iv. Small Industries Development Bank of India was established to

ensure adequate flow of credit to SSIs.

v. Stress was reiterated to upgrade technology to improve

competitiveness.

vi. Special emphasis was laid on training of women and youth under

Entrepreneurial Development Programme.

vii. Activities of Kadhi and Village Industries Commission and Khadi and

Village Industries Board were to expand.


The basic thrust of this resolution was to simplify regulations and procedures

by delicensing, deregulating, and decontrolling. Its salient features are:

a. SSIs were exempted from licensing for all articles of manufacture.

b. The investment limit for tiny enterprises was raised to Rs. 5 lakhs

irrespective of location.

c. Equity participation by other industrial undertakings was permitted up

to a limit of 24 percent of shareholding in SSIs.

d. Factoring services were to launch to solve the problem of delayed

payments to SSIs.

e. Priority was accorded to small and tiny units in allocation of

indigenous and raw materials.

f. Market promotion of products was emphasized through co-operatives, public institutions and other marketing agencies and

corporations.


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New policy initiatives in 1999-2000 for small scale sectors:

National Programme for rural industrialization has been announced with a mission

to set 1000 rural clusters every year to give a boost to rural industrialization.

To coordinate with the policy of the WTO for the development of those SMEs. The credit insurance scheme to provide security to the banks and improving the flow

of investment.

Maintaining turnover for these industries has been increased form 4cr. to 5cr.

maintaining 20% working capital out of it.

Exemption from excise duty will be extended to the goods bearing a brand name of

other manufacturers in rural areas.

The investment limit for the small scale industry is reduced from 3cr. to 1cr.

Small sector industrial policy 1991:

The Government had announced a separate policy under the title Policy Measures for

Promoting, Strengthening and Supplementing Small Enterprises. The main aim of this

policy is to improve and growth of the small sectors to enable them contributing equally

towards the society. Some features are as follows:

Investment limit has been raised from 2lakhs to 5lakhs.

Partnership Act in order to limit the liability of the small scale enterprises. Integrated infrastructural development.

Priority to small scale industries for the raw materials.

Setting export development sector.

Access to capital market.

Industrial policy resolution 2000:

Exemption for exercise duty rose from 50lakhs to 1cr.

Subsidy of 12% against loan for technology upgradation.

Limit of investment increased from 5lakhs to 10lakhs.

Granting 75000 for obtaining ISO 9000 certificate was continued.

Limit of loans were increased from 10lakhs to 25lakhs.

Family income limit was increased from 24000 to 40000 under rozgar yozna.

Industrial policy resolution 2001-02:


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Investment limit was increased from 1cr. to 5cr.

Credit guarantee cover was provided against a credit of 23cr.

Market Development Assistance was launched for SSI.

Industrial policy resolution 2003-04;

Investment in plant and machinery was from 1cr. to 5cr.

Banks were directed to provide loans with interest rates of 2% above and below

their prime lending rates.

Loan limit was raised from 25lakhs to 50lakhs.

Limit of dispensation was raised from 15lakhs to 25lakhs.

Fund of 10000cr was set up for SSI.


Measures provision for the development of SSI.

Investment limit for plant and machinery was raised from 1cr. to 5cr. in respect of 7

items of sports.

Provision of fund form SIDBI since April 2004, with 80% lending for SSI.

RBI raised the loan limit from 50lakhs to 1cr.

Promotional packages for SSI were initiated.


Small and medium scale enterprises were recognized in the service sector and were

treated on par with SSI in the manufacturing unit.


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Organisational Structure

The choice of a proper form of organisation is crucial for the success of a business-

enterprise. At the outset, every entrepreneur has to decide, about the type of organisation

which he would select for his private enterprise. It is an important entrepreneurial decision.

The form of organisation chosen influences the success or failure of the enterprise. Choice

of form of business organisation is crucial because it determines the risk, responsibility and

control of the entrepreneurs and the decision of profits. lt is a long-term decision because

the form of organisation cannot be changed frequently. The right form of organisation can

help the enterprise not only through initial success but in later growth too.

Forms of Ownership Organisation in a Small Scale Industry

(A) Sole proprietorship

(B) Partnership

(C) Joint Stock Company

(D) Co-operaiive Enterprise

In addition to the above, another form called Joint Hindu Family Firm is found in India.

However, it is losing its importance gradually due to the decline of the joint family system.

Sole Trading Concern

Meaning

Sole Trading Concern is the oldest form of business organisation. Sole means one person.

So, a soletrading concern is carried on by one person. The person who conducts the Sole

Trading Business is called Sole Trader or Sole Proprietor. Sole Trading Concern is a business

organisation in which oneman

show is the main feature. The minimum and maximum number of persons or owners in a

sole trading concern is one. lt is a form of organisation in which a single individual is the

owner, manager, controller, financer and risk bearer of the business. The sole trader alone isresponsible for profits and losses of the business. in a sole trading concern, a single person,

supplies the capital, uses his own skills and intelligence in managing the affairs of the

business and receives all the profits and bears all the loss of the business.

Definition

"A Sole Trading Concern is a form of business organisation, in which an individual invests

only his capital, uses his own skill and intelligence in the management of its affairs and is

entitled to earn all the profits as also is solely responsible for all the risks of ownership.


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Features or Characteristics of Sole Trading Concern

1. Single Ownership :

The sole trader owns all the assetsor property of the business.

He invest all the capital on his own in the business. The sole trading concern is also called as

"One Man Show". The ownership of the whole organisation is in the hands of one person.

2. Unification or No Separation of Ownership and Management :

The sole trader alone is the owner and manager of the business. The sole trader owns the

entire business and he only has to manage the affairs of his business. So, there is unification

of ownership and management.

3. Unlimited Liability:

The liability of a sole trader is unlimited as he alone is responsible for the liabilities of the

firm. in unlimited liability there is no distinction between business property and private

property. lf the business assets are not sufficient to pay off the liabilities to the creditors,then the private property is used to pay the liabilities or debts.

4. Flexibility :

A sole trader enjoys maximum flexibility. At any time he can expand the business or change

the line of business because he alone is the owner and manager of the business. He need

not ask or take opinion from anyone else. He may even close down the business, if the

situation so demands.

5. No sharing of Profits or Losses :

A sole trader enjoys all the profits of his business. The sole trader alone has to bear all thelosses also of his business. There is a direct relationship between efforts and rewards, in the

case of sole trading concern. The sole trader gets the full reward in the forms of profit for all

the efforts he puts in the

business.

6. Minimum Government Regulation :

A sole trading concern is subject to least government regulation. There are almost no legal

formalities to start or close down the business. There is no separate act for the sole trading

concern. Some type of sole trader may require government permission.

7. Complete or Maximum Business Secrecy :

ln the case of sole trading concern the sole trader can maintain business secrecy. The sole

trader need not publish any accounts and records, as he is not accountable to anyone

except himself, so the competitors cannot get his business secrets.

8. Quick Decision Making :

The sole trader makes decision on his own, therefore he takes quick decision. He need not

consult anyone else because he is the owner and manager.


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9. Close contact :

As the sole trader is the sole owner and manager, the sole trader develops close contacts

with his customers. He regularly deals with his customers and keeps personal contacts with

the customers and. employees.

10. Local Business :

The activities of the sole trader generally confined (limited) to a certain locality. Hence, the

business transaction of a sole trading concern are local. This is because of limited capital and

limited managerial ability.

11. Sole financier of business :

The sole trader contributes capital for the business himself. The sole trader may invest his

savings in the business. If additional capital is required, he may borrow from friends and

relatives. He may also take loans from banks.

12. Convenience to customers :The sole trader gives a lot of convenience to his customers. He may sell on credit basis to his

regular customers. He may also provide free home delivery. He may also advise the

customers regarding the choice of goods. The customers can get the goods within easy

reach from the residence. They offer maximum shopping convenience by opening shops at

residential area and by keeping their shops open at convenient timings.

Merits or Advantages of Sole Trading Concern

1. Ease in Formation :A sole trading concern is very easy to start and to conduct its activities. There are

least legal formalities in the formation of a sole trading concern. Any person who is

competent to enter into a contract can start a sole trading concern. The sole trader

may also close down the business as per his own will.

2. Complete control :

The sole trader can have complete control over business operations. He can take his

own decision regarding the business activities. The sole trader may take the advise

of his relatives and friends to solve the business problems.

3. Complete business secrecy :

The sole trader can maintain complete or maximum business secrecy. The sole trader

has not to publish his accounts and records. The competitors cannot get information about

business secrets of the sole trader.

4. Flexibility :

A sole trader enjoys maximum flexibility. At any time he can expand or change the

line of the business because he alone is the owner and manager. He need not ask or

take opinion from anyone else. He may even close down the business, if the

situation demands.


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5. Quick decision :

The sole trader can take quick business decisions because the sole trader is the sole

owner of the business. He need not consult others before taking a decision. Such quick but

good decisions are very important for the success of the business organisation.

6. Credit standing :The sole trader enjoys a good credit standing. He can obtain credit facility from his

sellers or suppliers because of unlimited liability and the goodwill of the sole trader. The

banks may also lend to a sole trader because he has unlimited liability.

7. Direct Motivation:

A sole trader has personal interest in the business. There is direct relationship between

efforts and rewards. The more the efforts, the more the profits, this motivates the sole

trader to work very hard. All the profits are enjoyed by the sole trader himself.

8. Convenience to customers:The sole trader gives a lot of convenience to his customers. He may sell on credit basis to his

regular customers. He may also provide free home delivery. He may also advise the

customers regarding the choice of goods. The customers can get the goods within easy

reach of their residence.

9. Close contact with customers:

The sole trader can develop close contact with his customers because he deals regularly

with the customers. By developing personal contact with his customers the sole trader can

come to know the likes and dislikes of the customers. The sole trader can advise the

customers regarding the goods to be purchased. This helps to increase the sales of the soletrader.

10. Personal relations with employees:

The sole trader can develop personal relations with his employees because sole trader

employs few people. The sole trader may also help employees in personal problems.

11. Self-employment :

People who dont want to work under anybody but want to be their own boss, can start sole

trading business. Unemployed persons can start sole trading business and get themselves

self employed. The sole trader can also provide employment opportunities to others in hissole trading business.

Limitations or Demerits or Disadvantages of Sole Trading

Concern

1. Limited Capital :

The main drawback of sole trading concern is limited capital. The sole trader can manage

the limited amount of capital from his own savings. He may also get some funds from his

friends and relatives. The banks may also provide limited amount of loan. Limited capital

restricts the size of the sole trading business.


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2.Lack of continuity:

The sole trading business lacks continuity. lf the sole trader cannot run his business due to ill

health or if he dies, the business comes to an end because his successors may not be

interested to run the business or they may not have the required business skills. There is no

legal compulsion on his successors to continue the business.

3.Unlimited liability :

The liability of the sole-trader is unlimited. No distinction is made between the private

property and the business property of the sole trader. In case, if the business property is not

sufficient to pay for debts of the concern, the private property of the sole trader is used to

pay to the creditors.

4.Risk of poor decision:

There is often the risk of poor decision on the part of the sole trader. No doubt, the sole

trader can take quick decisions, but the quality of decisions may be poor.

5. Less scope for employees :

The employees of sole trading concern do not get opportunities for promotion and

developing

their career. They are often exploited by a sole trader by paying them low wages and by

asking

them to work for more hours.

6.Lack of specialisation :

The sole trader cannot specialise in all the areas of his business. He is the jack of all but

master of none. He cannot take the services of experts because of limited capital.

7.Limited expansion :

The sole trading concern is restricted in its growth due to limitation of capital and lack of

managerial skills, which is required for expanding the business.

8.Monotony :

A sole trader has to fully devote his time to the activities of his business. He often does not

get time for personal and social activity.

9.Poor decision making :A sole trader make poor decisions regarding business activities. This is because he may lack

decision making skill. He may not be able to consult professional people due to lack of

money. There is no scope for consulting anyone before taking decisions, because the sole

trader is sole owner and manager.

10.Cautious approach :

Very often, sole trader adopt cautious approach, The sole traders are cautious in taking

decision. They may not have the guts to take risky but profitable decision.


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Joint Hindu family Business

Meaning of Joint Hindu Family Business

When a hindu Joint Family takes to business and it comes from one generation to anothergeneration, the form of organization is called Joint Hindu Family Business. It is afrom of

business organization, where the business is own by the members of hindu family living

jointly and the ownership is spread over the members of hindu family belonging to a

number of generations. When business continues from one generation to another in a hindu

family, it becomes a joint hindu family business.

The management of joint hindu family business lies with Karta or manager who is usually

the head of the family. The liability of karta is unlimited and the liability of the co-parceners

is limited.

Features or Characteristics of Joint Hindu Family Business:-

1. Formation

Each member in the family becomes a co-parcener in the family business by birth

and not by any agreement with the co-parceners.

2. Karta and Co- parceners

The senior member of Joint Hindu Family becomes the head of the family who

manages the business on behalf of the members. He is known as the Karta and the

others are known as co-parceners.

3. Membership

The membership of a Joint Hindu Family firm is unlimited. In other words there is no

limit for membership in Joint Hindu Family Business. This can be explained as

follows:

a) Joint Hindu Family firm comes into existence by the operation of Hindu law.

b) Every child [even girls in the State of Maharashtra] born in the Joint Hindu

Family becomes the coparcener in the Joint Hindu Family firm by his or herbirth.

c) The membership of Joint Hindu Family firms keeps on changing depending upon

the births and deaths in the family.

4. Sole Control with Karta

The karta is the sole manager of the business. The coparcener have no right to

interfere in the activities of the karta. However, if the coparcener do not approve

the activities of the karta, they may demand partition of the family property.


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5. Profit sharing

The Hindu Law does not specify the ratio in which the profits and losses should be

shared by karta and coparceners in a Joint Hindu Family Firm. profit sharing ratio keeps on

changing depending upon the births and deaths in the family.

6. Quick Decision MakingIn this type of business there can be quick decision making. This is because the

karta can take quick decisions with or without consulting the co-parceners.

7. Business Stability or Continuity

The death of karta does not affect the business continuity because the business can

be carried on by the next head of the family.

8. Business dominated by Male Members

This type of business is dominated by male members of the family. Normaly thefemale members do not take part in the Joint Hindu Family Business.

9. Business Secrecy

There is a good amount of business secrecy in the joint

hindu family. A business have not to publish their accounts

or other information. The competitors cannot easily obtain

the secrets or confidential information of Joint Hindu

Family business.

10.Flexibility in Operation

This type of business is flexible in business operation. The karta can expand the

business or change the line of business or even close down the business. Normally

the co-parceners agree with the karta in business decisions.

11.Liability

a) The liability of coparcener is limited and the liability of karta is unlimited.

Unlimited liability of karta means that, if the property of Joint Hindu Family firm

is not sufficient to pay off the third party liabilities, his personal property can beused for paying the third party liabilities.

b) Karta is the head of the family. He is the only manager of his business. Though

karta may be assisted by co-parceners in running the business, he is the only

decision maker of his business.

c) lf Karta takes any wrong decision, he has to take the responsibility for it and pay

off the liabilities, even by using his personal property, if the need arises.


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12.Partition

If co-parceners are not satisfied with the decisions taken by karta or his way of

managing the business, they can ask for partition of business

13.Local MarketDue to limited capital and managerial skills, karta can conduct business on a small

scale and therefore cater to the local market only.

14.Close relations

Normally Due to small scale business, which is operated in a local market with a few

Busiiiesc employees it is possible for Joint Hindu Family to maintain personal touch

with its customers and good relations with employees.

15.Good Credit Standing

A Joint Hindu Family firm enjoys a good credit standing in the market Since thebusiness is being conducted for a long period of time and is being passed on from

one generation to another, it enjoys goodwill in the market.

Merits or Advantages of Joint Hindu Family Firm

1. Easy Formation

Joint Hindu Family Firm is very easy to form. It comes into existence as per

Hindu-Law.

2. Quick Decision

The Karta is the only decision making authority and thus he takes quick decision.

He is not required to consult anyone while taking decision.

of his business.

3. Business Secrecy

As all decisions are taken by the Karta, complete business secrecy can be

maintained. The coparceners have no right even to inspect the books of

accounts.

4. Liability

The coparceners have limited liability. Thus, their private property cannot be

used to pay the third party liabilities. Only the liability of the karta is unlimited.

5. Continuity

The life of the joint hindu family business is not affected by the death of any co

parceners and therefore it has a long and stable life. After the death of the Karta,

the next head of the family manages the business.

6. Cautious decisionsThe liability of the karta is unlimited. Therefore, he takes decisions very carefully.


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7. Training School

This type of business is a training school for members of the family. They get

guidance from the karta regarding the conduct of business activities.

8. Socially beneficial

This type of business looks after the disabled, the aged and widows in the family.Hence, it is beneficial to society.

9. Flexibiltiy

This type of business is flexible in business operation. The karta can expand the

business or change the line of business or even close down the business, if the

situation so demands.

10.Good Credit Standing

A joint hindu family firm enjoys a good credit standing in the market.

Demerits or disadvantages of joint hindu family:

1. Limited funds or limited capital:

The capacity of joint hindu familt too raise business is limited as compared to

partnership firm, since the liability of co-parceners is limited. The business

has to depend on the savings of the family.

2. Limited managerial ability:

Tha karta has unquestined right of management. He is the only decission

making authority. He need not even concern the co-parceners.

3. Instability:

The co-parceners can demand partition in business, if they lose faith in karta.

Due to this the firm may suffer instability.

4. No incentive to work:

The rights of management are enjoyed only by karta. However the profits are

shared by all the co- parceners. Therefore the karta has no incentive to work

hard.

5. Danger of unlimited liability:

The liability of karta is unlimited. Hence there is continuous danger to his

personal property being used for payment of creditors.

6. Domination by male members:

The business is dominated by male members of the family.no scope is given

to female members.


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7. Problem of continuity:

There may be a Problem continuity of business. If the karta dies an the other

member are not able to handle the business it may be closed down.

8. Restricted expansion:

Due to limited capital and limited managerial ability of karta, it is not possible

for the firm to expand the business beyond a particular limit. The firm is

forced to carry business on small scale and deal in local market.

Co-operative Society

Co-operative society is a voluntary association of persons. Minimum ten adult persons are

required to form a co-operative society. A co-operative society is registered with the

Registrar of Co-operative Societies under the Co-operative Societies Act. A co-operative

society differs from other forms of business organisation like sole trading concern,

partnership firm and joint stock company.

This is because the main objective of co-operative society is to provide service to its

members rather than to make profits. Service is the main moto of co-operative form of

organisation. The membership of a co-operative society is open to all. Any person can

become a member of the co-operative society irrespective of the religion, political ideology,

language, colour and caste. The liability of the members in a co-operative society is limited.

The liability of member is limited upto the face value of the shares held by the members. In

co-operative society all the members are treated equally. The principle of voting is one

member, one vote. Thus there is eqality in voting rights irrespective of shareholding.

Features or Characteristics of co-operative society

1. Voluntary association:

It is a voluntary association of individuals or a person. The individual join the

co-operative society on his own free will. He can also leave the organisation

as and when he wants.

2. Open membership:

Membership is open to all those who are willing to join the co-operative

society. There is no restriction of caste color and religion.

3. Equal voting rights:

In co-operative society, the ruled followed in respect of voting is one

member, one vote. Therefore there is equality in votong rights, irrespective

of shareholding.

4. Democratic management:

A co-operative society is democratically managed. Every member is given an

opportunity to express his opinion at the meeting. Decisions are taken by


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majority of votes. The members of co-operative society elect the managing

committee members.

5. Service motive:

The main objective of co-operative society is to provide service to its

members. Profit is secondary objective. Nowadays they try to balance service

motive with profit consideration in order that co-operatives can expand their

acivities.

6. Cash trading:

The cooperatives carry on their business on cash basis. Therefore, there

trading and is no risk of bad debts.

7. State Control:

The Cooperatives are subject to state government control. In Maharashtra,

the co-operatives are subject to the Maharashtra State Co-operativeSocieties Act, 1960. The co-operatives have to be registered under the Act

and have to follow the provisions of the Act

8. Registration:

Registration of a cooperative society is compulsory as per the relevant Act

in the concerned state. Co-operative Societies have to be registered with the

Registrar of Co-operative Societies of the concerned state. A co-operative

organisation in the state of Maharashtra has to be registered under the

Maharashtra State Co-operative Societies Act, 1960.

9. Limited Liability:

The liability of the members in a co-operative society is limited to the extent

of the unpaid amount of shares held by the members. lf the business assets

are not sufficient to pay off its liabilities or debts, the personal property of

members cannot be used for the purpose.

10.Bye-laws:

The rules and regulations governing the working of a co-operative society is

called the byelaws. The bye-laws are like Articles of Association of a Joint

Stock Company.

11.Stable Life:

The co-operative enjoys a stable life. There is continued existence. The co-

operative society survives, even if any member dies or resigns or leaves the

society.

12.Lack of secrecy:

The co-operative lack secrecy because the accounts are made available to its

members, auditors and outsiders. It is difficult to maintain business secrecy in

a co-operative organisation.


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13.Easy Formation:

The formation of a co-operative society is easy. The minimum number of

members required for Registration of a Co-operative society is ten adult

members.

Merits or advantages of co-operative society:

1. Easy formation:

The formation of a co-operative society is easy. The minimum number of

members required for Registration of a Co-operative society is ten adult

members. . A co-operative society is registered with the Registrar of Co-

operative Societies under the Co-operative Societies Act.

2. Democratic management:

A co-operative society is democratically managed. Every member is given an

apportunity to express his opinion at the meeting. Decisions are taken by

majority of votes. The members of co-operative society elect the managing

committee members.

3. Stable Life:

The co-operative enjoys a stable life. There is continued existence. The co-

operative society survives, even if any member dies or resigns or leaves the

society.

4. Limited Liability:

The liability of the members in a co-operative society is limited to the extent

of the unpaid amount of shares held by the members. lf the business assets

are not sufficient to pay off its liabilities or debts, the personal property of

members cannot be used for the purpose.

5. Cash trading:

The co-operatives carry on their business on cash basis. Therefore, there

trading and is no risk of bad debts.

6. Open membership:Membership is open to all those who are willing to join the co-operative

society. There is no restriction of caste color and religion.

7. Large membership:

In co-operative society, there is large membership. The minimum number of

person to form a co-operative society is ten. There is no limit for maximum

number of members in a co-operative society.


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Demerits or limitation of co-operative society:

1. Lack of secrecy:

The co-operative lack secrecy because the accounts are made available to its

members, auditors and outsiders. It is difficult to maintain business secrecy ina co-operative organisation.

2. State Control:

The Cooperatives are subject to state government control. In Maharashtra,

the co-operatives are subject to the Maharashtra State Co-operative

Societies Act, 1960. The co-operatives have to be registered under the Act

and have to follow the provisions of the Act.

3. Lack of motivation:

There is often lack of motivation for the managing committee members.

There is no relationship between efforts and rewards.

4. Restriction of number:

The co-operative society cannot be formed with less than 10 members. This

creates a problem for those individuals who want to from a co-operative

society with less than 10 members.

5. Delay in decision making:

There is often delay in decision making, especially when it requires the

approval of managing committee.

6. Disputes:

Quite often there are disputes in the co-operative society. In most co-

operative societies there are two or more groups. Each group tries to oppose

the other. This affects the overall working of the society.


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Documents

Entrepreneurship Maurice