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Formalities For Setting Up Of Small Business Enterprises

Unit- 3

Major Forms of Ownership


Sole Proprietorship Partnership Corporation Franchising

Sole Proprietorship
A Sole Proprietorship is the most simple type of business to start . It belongs to only one person. The owner can hire his/her staff and takes responsibility for all capital needed (like machinery, startup costs or raw materials). The owner also accepts all profits and debts incurred.

Sometimes the individual uses his own name in the name of the business e.g. "Jones Auto Repair."

Advantages of the Sole Proprietorship


Simple to create Profit incentive Total decision making authority No special legal restrictions Easy to discontinue

Disadvantages of the Sole Proprietorship


Unlimited Personal Liability Personally Liable For Any And All Debts And Liabilities Of The Business Limited Skills And Capabilities Feeling Of Isolation Limited Access To Capital Lack Of Continuity

Partnership
Groups of people who agree to combine their capital, labor and resources towards some common goal [usually profit]. It may have 2 to 20 members. Attorney to draw up the contract between the partners ,the contract should state what contributions each member has made, how the profits will be divided and many other aspects within the partnership. Jointly responsibility for debts incurred by other members.

Advantages of the Partnership


Complementary skills of partners Larger pool of capital Little government regulation Flexibility Taxation

Disadvantages of the Partnership


Unlimited liability of at least one partner Capital accumulation Difficulty in disposing of partnership interest Division of profits Lack of continuity Potential for personality and authority conflicts

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

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) to handle a specific product or service under certain mutually agreed upon conditions Franchiser is company which has developed and thoroughly tested its business methods and has decide to increase the size of the business by offering individuals, the franchisees. the right to trade under its business name.

Benefits of Franchising
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

Drawbacks of Franchising
Franchise fees and profit sharing Strict adherence to standardized operations Restrictions on purchasing Limited product line Unsatisfactory training programs Less freedom

REGISTRATION
Registering Your SSI Unit The main purpose of Registration is to maintain statistics and maintain a roll of such units for the purposes of providing incentives and support service

Steps:1.Obtain SSI registration 2.Provisional registration Certificate 3.Permanent Registration Certificate

SSI Registration
Small Scale and ancillary units should seek registration with the Director of Industries of the concerned State Government.

Benefits of Registering
The registration scheme has no statutory basis. Units would normally get registered to avail some benefits, incentives or support given either by the Central or State Govt. The regime of incentives offered by the Centre generally contains the following: - Credit prescription ,differential rates of interest etc. - Excise Exemption Scheme - Exemption under Direct Tax Laws. - Statutory support such as reservation and the Interest on Delayed Payments Act.

Objectives of The Registration Scheme


1. - To Enumerate and Maintain a roll of small industries to which the package of incentives and support are targeted. - To provide a certificate enabling the units to avail statutory benefits mainly in terms of protection.

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- To serve the purpose of collection of statistics.


- To create nodal centers at the Centre, State and District levels to promote SSI.

Features of The Scheme


- DIC is the primary registering centre - Registration is voluntary and not compulsory. - Two types of registration is done in all States:First a provisional registration certificate is given. And after commencement of production, a permanent registration certificate is given. - PRC is normally valid for 5 years and permanent registration is given in perpetuity.

Provisional Registration Certificate (PRC)


- This is given for the pre-operative period and enables the units to obtain the term loans and working capital from financial institutions/banks under priority sector lending. - Obtain facilities for accommodation, land, other approvals etc. - Obtain various necessary NOCs and clearances from regulatory bodies such as Pollution Control Board, Labor Regulations etc.

Procedure For Registration


A unit can apply for PRC for: Units employing less than 50/100 workers with/without power can apply for registration even for CERTAIN SPECIFIED items

- Unit applies for PRC in prescribed application form. No field enquiry is done and PRC is issued.
- PRC is valid for five years. If the entrepreneur is unable to set up the unit in this period, he can apply afresh at the end of five years period. - Once the unit commences production, it has to apply for permanent registration on the prescribed form.

Application Formalities Required: Application Copy Of PRC Detailed Project Report Documents Relating To Qualifications

Permanent Registration Certificate


Enables the unit to get the following incentives/concessions: - Excise exemptions - Income-Tax exemption and Sales Tax exemption as per State Govt. Policy. - Incentives and concessions in power tariff etc. - Price and purchase preference for goods produced. - Availability of raw material depending on existing policy.

Basis of Evaluation
The following form basis of evaluation: - The unit has obtained all necessary clearances whether statutory or administrative. e.g. drug license under drug control order, NOC from Pollution Control Board, if required etc. - Unit does not violate any locational restrictions in force, at the time of evaluation. - Value of plant and machinery is within prescribed limits. - Unit is not owned, controlled or subsidiary of any other industrial undertaking as per notification.

De-Registration
A Small Scale Unit can violate the regulations in the following ways which will make it liable for deregistration:
1 - It crosses the investment limits. 2- It starts manufacturing any new item or items that require an industrial license or other kind of statutory license. 3- It does not satisfy the condition of being owned, controlled or being a subsidiary of any other industrial undertaking.

Clearances from Specific Departments


Required depending on:1. Building plan approval 2. Trade license 3. Sales tax registration 4. Central excise registration 5. BIS Certificate 6. Power loom Certificate 7. Drugs and cosmetics license 8. Approvals of hotels 9. Food adulteration act license.

Arranging for:Land/ Shed:1. Choosing a suitable industrial site 2. Ready industrial shed on Rent / on ownership basis 3. Land for the project is taken from the State Industrial Areas Development Board (Pvt. Land can be taken
with all necessary formalities completed)

Arranging for Plant & Machinery


Choosing and ordering right machinery is of paramount importance Direct purchasePurchasing the machinery from the recognized manufacturer/ dealer 2. NSIC Hire Purchase SchemeLeasing the plant n machinery to the promoters of unit, once the installment is paid, the assets will become the property of the unit.

Infra Structure
SWAs Single window agencies At district level n Provides clearances for various infra. The main infra required are:1. Land or shed for project 2. Power connection- Power Tariff, Nearest Substation, Quality, Duration.. 3. Water supply 4. Connectivity to nearest rail, road or port

Apply and Obtain Finance


Various Sources Of Funds are:1. Share capital 2. Internal accruals 3. Deposits- Own/Public 4. Debentures 5. Short term borrowings 6. Long term Loans 7. Bridge loans (short-term loan, for a period of 2 weeks to 3 years ) 8. WC loans like cash credit.

Small Scale units Obtain Loans under:-

1. Term loans
For fixed asset Can be availed from the State Financial Corporation or from commercial banks Extent of the loan- Depend on Project Cost and Entrepreneurs background. Repayment in 5- 8 years ,based on estimated cash generation and profitability of the project.

2.Working Capital Loan


Needed for day to day operations of the unit Working Capital needs are assessed. Security for such loans are material( raw materials, semi-finished goods, and finished goods,).

Financial Assistance for SSI


SIDBI( Small Indus Dev Bank Of India ) SFC State Financial Corporations. NSIC- National Small Indus. Corp. SIDC of Various States ( Small Indus Dev. Corp.) DIC Term Loans From- All India Financial Institutions such as ICICI,IDBI,IFCI.

Implement The Project


Major activities:1. Construct shed( For those who purchased the land) 2. Order for machinery 3. Recruit personnel 4. Arrange for raw material 5. Marketing 6. Erection and commissioning. 7. Obtain final clearances.

Obtain final clearances.


Registration under sales tax act- commercial sales officer of the area concerned Registration under central excise act- collector of central excise Payment of income tax- ITO of the concerned area Power connection- designated officer of State electricity board Etc..

Environment Pollution Related Clearances


NOC No Objection Certificate( NOC) 1. POLLUTION BOARD Obtained from the State Pollution Control Board(SPCB), before commencement of construction activity. EIA- Environment Impact Assessment for highly polluting Category of Industry and submission to SPCB.

NOC No Objection Certificate


2.From State Pollution Control Board(SPCB), For Industries Requiring Water And Effecting Effluent Disposal

3.For Units Functioning Outside Industrial Area


Permission from the municipal corporation/municipality. In case private agricultural land is purchased for the project , the land have to be rezoned as industrial zone, permission is sought for the same from Directorate of Town and Country Planning

4. For Registration as a 100 % EOU


Clearances of the development commissioner of the Export Processing Zone (EPZ). If Co. wishes to offer Equity Shares to public clearance from SEBI is Required.

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