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FormalitiesForSettingUpOfSmallBusinessEnterprises
Unit-3
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Major Forms ofOwnership
Sole Proprietorship Partnership Corporation Franchising
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Sole Proprietorship ASoleProprietorshipisthemostsimple typeofbusinesstostart.
Itbelongstoonlyoneperson.
Theownercanhirehis/herstaffandtakesresponsibilityforallcapitalneeded(likemachinery,startupcostsorrawmaterials).
Theowneralsoacceptsallprofitsanddebtsincurred.
Sometimes the individual uses his own name in thename of the business e.g. "Jones Auto Repair."
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Advantages of the SoleProprietorship
Simple to create Profit incentive Total decision making authority No special legal restrictions Easy to discontinue
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Disadvantages of theSole Proprietorship Unlimited Personal Liability Personally Liable For Any And All DebtsAnd Liabilities Of The Business Limited Skills And Capabilities Feeling Of Isolation Limited Access To Capital Lack Of Continuity
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Partnership
Groupsofpeoplewhoagreetocombinetheircapital,laborandresourcestowardssomecommongoal[usuallyprofit].
Itmayhave2to20members. Attorney to draw up the contract betweenthe partners,thecontractshouldstatewhatcontributionseachmemberhas
made,howtheprofitswillbedividedandmanyotheraspectswithinthepartnership.
Jointlyresponsibilityfordebtsincurredbyothermembers.
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Advantages ofthe Partnership Complementary skills of partners Larger pool of capital Little government regulation Flexibility Taxation
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Disadvantages ofthe Partnership Unlimited liability of at least one partner Capital accumulation Difficulty in disposing of partnershipinterest Division of profits Lack of continuity Potential for personality and authority
conflicts
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Corporation/limited
company A company may be private or public limited.
A private limited company can be formed with
minimum of 2 persons and max of 50 persons. A public limited co. can be formed with a min of 7
persons and max of persons is unlimited.
Companies are governed by the Companies Act,
1956
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Franchising Is something of a halfway house, lying between
entrepreneurship and employment
Is a system of distribution that enables the supplier (
franchiser) to arrange for a dealer( franchisee) tohandle a specific product or service under certainmutually agreed upon conditions
Franchiser is company which has developed andthoroughly tested its business methods and has
decide to increase the size of the business by offeringindividuals, the franchisees. the right to trade underits business name.
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Benefits ofFranchising Management training and support Brand name appeal Standardized quality of goods and services National advertising program Financial assistance Proven products and business formats Centralized buying power Site selection and territorial protection Greater chance for success
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Drawbacks ofFranchising Franchise fees and profit sharing Strict adherence to standardizedoperations Restrictions on purchasing Limited product line Unsatisfactory training programs Less freedom
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REGISTRATION
Registering Your SSI Unit
The main purpose of Registration is to maintainstatistics and maintain a roll of such units for thepurposes of providing incentives and supportservice Steps:-1.ObtainSSIregistration
2.ProvisionalregistrationCertificate
3.PermanentRegistrationCertificate
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SSI Registration Small Scale and ancillary unitsshould seek registration with theDirector of Industries of theconcerned State Government.
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Benefits of Registering Theregistrationschemehasnostatutorybasis.
Unitswouldnormallygetregisteredtoavailsomebenefits,
incentivesorsupportgiveneitherbytheCentralorStateGovt.
TheregimeofincentivesofferedbytheCentregenerallycontainsthefollowing:
-Creditprescription,differentialratesofinterestetc.
-ExciseExemptionScheme-ExemptionunderDirectTaxLaws.-StatutorysupportsuchasreservationandtheInterestonDelayedPaymentsAct.
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Objectives of TheRegistrationScheme
1. -ToEnumerateandMaintainarollofsmallindustriestowhichthepackageofincentivesand support are targeted.
2. -Toprovideacertificateenablingtheunitstoavailstatutory benefitsmainlyintermsofprotection.
3. -Toservethepurposeofcollection of statistics.
4. -TocreatenodalcentersattheCentre,StateandDistrictlevelstopromoteSSI.
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Features of The Scheme -DICistheprimaryregisteringcentre
-Registrationisvoluntaryandnotcompulsory.
-TwotypesofregistrationisdoneinallStates:-
Firstaprovisionalregistrationcertificateisgiven.
Andaftercommencementofproduction,a
permanentregistrationcertificateisgiven.-PRCisnormallyvalidfor5yearsand
permanentregistrationisgiveninperpetuity.
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Provisional RegistrationCertificate (PRC)
-This is given for the pre-operative period andenables the units to obtain the term loans andworking capital from financial institutions/banksunder priority sector lending.
- Obtain facilities for accommodation, land, other
approvals etc.
- Obtain various necessary NOCs and clearancesfrom regulatory bodies such as Pollution ControlBoard, Labor Regulations etc.
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Procedure ForRegistrationA unit can apply for PRC for: Unitsemployinglessthan50/100workerswith/withoutpowercanapplyforregistrationevenforCERTAINSPECIFIEDitems
-UnitappliesforPRCinprescribedapplicationform.NofieldenquiryisdoneandPRCisissued.
-PRCisvalidforfiveyears.Iftheentrepreneurisunabletosetuptheunitinthisperiod,hecanapplyafreshattheendoffiveyearsperiod.
-Oncetheunitcommencesproduction,ithastoapplyforpermanentregistrationontheprescribedform.
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Application
FormalitiesRequired:-
Application
CopyOfPRC
DetailedProjectReport
DocumentsRelatingToQualifications
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PermanentRegistration CertificateEnables the unit to get the followingincentives/concessions:
-Exciseexemptions
-Income-TaxexemptionandSalesTax
exemptionasperStateGovt.Policy.
-Incentivesandconcessionsinpower
tariffetc.-Priceandpurchasepreferencefor
goodsproduced.
-Availabilityofrawmaterialdepending
onexistingpolicy.
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Basisof
Evaluation
Thefollowingformbasisofevaluation:
-Theunithasobtainedallnecessaryclearanceswhetherstatutoryoradministrative.e.g.druglicenseunderdrug
controlorder,NOCfromPollutionControlBoard,ifrequiredetc.
-Unitdoesnotviolateanylocationalrestrictionsinforce,atthetimeofevaluation.
-Valueofplantandmachineryiswithinprescribedlimits.
-Unitisnotowned,controlledorsubsidiaryofanyotherindustrialundertakingaspernotification.
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De-RegistrationASmallScaleUnitcanviolatetheregulationsinthefollowingwayswhichwillmakeitliableforde-registration:
1-Itcrossestheinvestmentlimits.
2-Itstartsmanufacturinganynewitemoritemsthatrequireanindustriallicenseorotherkindof
statutorylicense.
3-Itdoesnotsatisfytheconditionofbeingowned,controlledorbeingasubsidiaryofany
otherindustrialundertaking.
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Clearancesfrom
SpecificDepartments
Required depending on:-1. Buildingplanapproval
2. Tradelicense
3. Salestaxregistration4. Centralexciseregistration
5. BISCertificate
6. PowerloomCertificate
7. Drugsandcosmeticslicense8. Approvalsofhotels
9. Foodadulterationactlicense.
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Arrangingfor:-
Land/ Shed:-1. Choosingasuitableindustrialsite
2. ReadyindustrialshedonRent/onownershipbasis
3. Landfortheprojectistakenfrom
theStateIndustrialAreasDevelopmentBoard(Pvt.Landcanbetakenwithallnecessaryformalitiescompleted)
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ArrangingforPlant
&Machinery
Choosing and ordering right machinery isof paramount importance Direct purchase- Purchasingthemachineryfromthe
recognizedmanufacturer/dealer
2.NSIC Hire Purchase Scheme- Leasingtheplantnmachinerytothe
promotersofunit,oncetheinstallmentispaid,theassetswillbecomethe
propertyoftheunit.
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InfraStructure
SWAsSinglewindowagenciesAtdistrictleveln
Providesclearancesforvariousinfra.Themaininfrarequiredare:-
1. Landorshedforproject
2. Powerconnection-PowerTariff,NearestSubstation,Quality,Duration..
3. Watersupply
4. Connectivitytonearestrail,roadorport
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Applyand
ObtainFinance
Various Sources Of Funds are:-1. Sharecapital
2. Internalaccruals3. Deposits-Own/Public
4. Debentures
5. Shorttermborrowings
6. LongtermLoans7. Bridgeloans(short-termloan,fora
periodof2weeksto3years)
8. WCloanslikecashcredit.
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SmallScaleunits
ObtainLoansunder:-
1. Term loans Forfixedasset
CanbeavailedfromtheStateFinancialCorporationorfromcommercialbanks
Extentoftheloan-DependonProjectCostand
Entrepreneursbackground.
Repaymentin5-8years,basedonestimatedcashgenerationandprofitabilityoftheproject.
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2.Working Capital Loan Neededfordaytodayoperationsofthe
unit WorkingCapitalneedsareassessed.
Securityforsuchloansarematerial(raw
materials,semi-finishedgoods,andfinishedgoods,).
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Financial
AssistanceforSSI
SIDBI(SmallIndusDevBankOfIndia) SFC StateFinancialCorporations. NSIC-NationalSmallIndus.Corp. SIDCofVariousStates(SmallIndusDev.Corp.)
DIC TermLoansFrom-AllIndiaFinancialInstitutions such as ICICI,IDBI,IFCI.
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ImplementThe
ProjectMajoractivities:-
1. Constructshed(Forthosewhopurchasedtheland)
2. Orderformachinery
3. Recruitpersonnel
4. Arrangeforrawmaterial
5. Marketing
6. Erectionandcommissioning.
7. Obtainfinalclearances.
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Obtainfinalclearances. Registrationundersalestaxact-commercialsales
officeroftheareaconcerned Registrationundercentralexciseact-collectorof
centralexcise
Paymentofincometax-ITOoftheconcernedarea
Powerconnection-designatedofficerofStateelectricityboard
Etc..
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EnvironmentPollution
RelatedClearances
NOC No Objection Certificate( NOC)1.POLLUTION BOARD ObtainedfromtheState PollutionControl Board(SPCB),beforecommencementofconstructionactivity.
EIA-EnvironmentImpactAssessmentfor highly polluting CategoryofIndustryandsubmissiontoSPCB.
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NOC No Objection Certificate2.FromStatePollutionControl
Board(SPCB),For Industries RequiringWater And Effecting Effluent Disposal
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3.ForUnitsFunctioningOutside
IndustrialArea
Permissionfromthemunicipalcorporation/municipality. Incaseprivateagriculturallandis
purchasedfortheproject,thelandhaveto
berezonedasindustrialzone,permission
issoughtforthesamefromDirectorate ofTown and Country Planning
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4.ForRegistrationasa100%EOU
Clearancesofthedevelopment
commissioneroftheExportProcessing Zone (EPZ). IfCo.wishestoofferEquitySharesto
publicclearancefromSEBIisRequired.
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