Chapter 2 Entrepreneurship Development and Leadership

Important Factors of Entrepreneurial Motivation

Motivation is one of the elements in influencing the process of entrepreneurship. The general
entrepreneurial motivation factors, including need for achievement, locus of control, vision, desire
for independence, passion, and drive.
1. Need for Achievement: Individuals who have higher level in need for achievement are will
have higher desire to involve in activities or tasks that have a high degree of individual
responsibility for outcomes. Entrepreneurial activity involves high responsibility and high
risk. In order to have great achievement, entrepreneurs will like to take the challenge to start
up and grow their business successfully. Hence, entrepreneurial roles are characterized as
having greater degree of risk, skill and effort, as well as feedback on performance. From the
Maslow’s hierarchy, entrepreneurs are individuals who are in the level of self-esteem or self-
actualization. They desire for self-fulfillment as to be successful entrepreneurs.
2. Locus of Control: Locus of control is the belief in the degree which individuals believe
their actions or personal characteristics decide the consequences. Individuals who have an
external locus of control believe that the outcome of an extent is out of their control, while
individual with an internal locus of control believe that their personal actions directly affect
the outcome of an event. Individuals with internal locus of control will like to play
entrepreneurial roles because they desire positions in which their actions have a direct
impact on results.
3. Vision: An individual with the vision of creating a profitable firm can be motivated to be an
entrepreneur. Vision is influenced and affected by cognitive factors such as knowledge,
skills, and abilities (KSAs). The combination or integration of motivation and cognition will
further create visionary action. Firstly, the entrepreneurs will need to have the knowledge
regarding the sector or industry they want to invent into. Next, they will need to have the
skills such as leaderships, bargaining and purchasing, market analysis, decision making,
team building, planning as well as problem solving. Furthermore, the entrepreneurs need to
have the abilities such as financial abilities and intelligence, too. Aligned with the KSAs, the
entrepreneurs will have a realistic and achievable vision, including the strategy for the
organization and manage it well.
4. Desire for Independence: Individuals choose to start up their own business because they
don’t like to work for other people. They desire independence whereby they make decision
by themselves, they choose their own path and life rather than living off the efforts of others.
Many studies have found that the entrepreneurial role necessitates independence. First the
entrepreneur takes responsibility for pursuing an opportunity did not exist before. Second,
entrepreneurs are, in the end, responsible for results, whether achieved or not achieved.
Further, individuals may pursue entrepreneurial careers because they desire independence.
For example, in interviews with U.S. female firm founders, its found that one of the prime
motivations for starting a business was a desire for independence.
5. Passion: Passion is a feeling of an individual which will be converted later into action in
order to show they are enthusiastic people. Passion is a central motive rather than motive to
 serve their employees and society. An entrepreneur will be passion for their work, love their
work and the process of establishing an organization by their efforts and make it profitable
yet successful. The reason of putting so much effort by entrepreneurs on the organization is
actually come from their own interest. Passion is hardly to be measured in quantitative but
can be observed and come out with qualitative analysis. Passion has a direct impact in firm
growth.
6. Drive: There is some relation between drive and Need for Achievement. However, the term
drive is referring to broader aspect than Need for Achievement. The authors have further
explained the variables for drive which includes ambition, goals, energy and stamina, and
persistence. Ambition affects the level of desire for entrepreneurs to create something great,
eventful and meaningful. An entrepreneur is the one with great ambition such as to be
successful in life, to be the one who have great influence on others, to create something new
and others. Ambition will drive entrepreneurs to set high goals for one and others. Better
performance will be driven by high goals comparing to the result of low goals. When a goal
is being persuading consistently, we can say it is the persistence of the entrepreneur to
realize their dream.
https://www.mbaknol.com/modern-management-concepts/entrepreneurial-motivation-factors/

Some of the common entrepreneurial leadership characteristics are as follows.

1. Communication skills
The leader is able to clearly articulate their ideas, and the plan to achieve common goals. They
encourage communication between departments and across levels. They avoid ambiguities and
generalizations, and are able to avoid conflict and misunderstanding due to poor communication.

2. Vision
A successful entrepreneurial leader has a clear vision. He knows exactly where he wants to go and
how to get there. They communicate their vision to the team and work with them to make the vision
a reality.

3. Supportive
An entrepreneurial leader realizes the importance of initiative and reactiveness, and they go out of
their way to provide all the support that the team needs to achieve their goals. The leader usually
does not punish employees when they take a calculated risk which misfires. Instead, they sit down
with employees to analyze what went wrong and work with them to correct the mistakes.

4. Self-belief
The leader has tremendous belief in themselves and has confidence gained from years of
experimenting, at times failing, and learning. They are aware of their strengths and weaknesses, and
demonstrate their skills without hubris. An entrepreneurial leader is very self-assured.
5. Shares success
When the team or the organization succeeds at something, the leader does not hog the limelight or
take all the credit. They acknowledge the contribution of others and shares the accolades with them.

6. Involved
You will not find an entrepreneurial leader cooped up in the office. Leaders like to spend time
among employees, walk around the factory or department, interact with everyone, and see them
doing their job. This leader will usually take some time out to informally chat with employees, and
understand their work and personal challenges.

7. Create an atmosphere conducive to growth

With a deep understanding of the importance of other people’s contribution to organizational
success, the entrepreneurial leader creates an atmosphere that encourages everyone to share ideas,
grow, and thrive. They actively seek other’s opinions, and encourages them to come up with
solutions to the problems that they face. The entrepreneurial leader also provides positive feedback
when employees come forward with an opinion.

8. Honesty
Honesty is the most important quality of an exceptional leader. Entrepreneurial leaders who are
honest are able to quickly win the trust of their employees. People respect leaders to come across as
honest, and are more likely to accept positive or negative feedback and also work harder.

9. Perseverance
When the going gets tough, the entrepreneurial leader perseveres. True entrepreneurs simply don’t
quit, they keep going till they find what they’re looking for.

10. Learning
The leader not only invests significantly in learning and updating their knowledge, but they also
create a learning environment in the organization encouraging others to improve their knowledge,
widen their experience, and tackle multiple challenges. They encourage employees to think outside
the box and come up with creative solutions to problems.
https://yscouts.com/10-entrepreneurial-leadership-characteristics/

Factors Influencing Entrepreneurship

Development
Economic Factors
The economic environment exercises the most direct and immediate influence on entrepreneurship.
This is likely because people become entrepreneurs due to necessity when there are no jobs. “In
countries where the economy is poorer, or where unemployment rates are high, citizens turn to
starting their own small
businesses where they see opportunity,” Trilby Rajna of Approved Index said. Economic factors
impacting entrepreneurship include:
1. Capital
Capital is one of the most important factors, yet one of the biggest barriers when launching a
new business. Entrepreneurs require capital to start risky ventures and also require instant
capital to scale up the business quickly if the idea is found to be successful. There are
however numerous ways to fund a new venture including bank loans, crowdfunding, and
bootstrapping.
2. Labor
The availability of labor impacts entrepreneurship. Nevertheless, the quality rather than the
quantity of labor influences the emergence and growth of entrepreneurship.
3. Raw Materials
The necessity of raw materials consisting of natural resources hardly needs any emphasis for
establishing any industrial activity and the emergence of entrepreneurship. The absence of
raw materials adversely affects the entrepreneurial development.

Psychological Factors
They say entrepreneurship is not for the faint of heart. But then for whom is it! What does it take for
an individual to become an entrepreneur? While there isn’t a single “ideal” entrepreneurial
personality, one thing remains constant: an entrepreneurial spirit. This type of spirit entails many
traits and characters that make 400 million entrepreneurs out of 7 billion people worldwide.(1)
1. Passion
Starting up a new business is not an easy task to pull off and a consistent and constant
commitment to the idea and the long hours it will require to turn it to a success is essential.
Passion is the fuel of this commitment that motivates entrepreneurs to rise early in the
morning and put their blood, sweat, and tears into their business.
2. Need for Achievement
Entrepreneurs are self-starters with a need to achieve. This achievement motivation isn’t
necessarily driven by the incentives of financial gain only but also by the satisfaction gain.
To add, entrepreneurs’ motivation extends to reach their employees and partners to keep
them on the same page and drive them to achieve as well.
3. Resilience
Resilience comes with the package of the entrepreneurial spirit to help entrepreneurs stay
determined in the face of any defeat they might encounter throughout the process. Failure is
then a mere lesson to learn from and continue instead of giving up.

Social Factors
Social factors can go a long way in boosting entrepreneurship. In fact, it was the highly helpful
society that made the industrial revolution a glorious success in Europe. Such factors strongly affect
the entrepreneurial behavior, which contributes to entrepreneurial growth. The main components of
the social environment include:
 1. Family Background
Family background including the size, type, and economic status can influence
entrepreneurs and; therefore, entrepreneurship. Nonetheless, the entrepreneurial spirit does
not necessarily run in the family. According to some sources, 51.9% of all entrepreneurs
were the first to launch a business in their family.(2) Furthermore, less than 1% of all
entrepreneurs come from extremely rich or extremely poor families.
2. Education
Studies state that 95.1% of all entrepreneurs hold a bachelor degree, 47% of those have
advanced in their education and acquired masters, Ph.D. or the like.(2) This is a well enough
indicator of the importance of education to the development of entrepreneurship.
3. Social Networks
Interacting with the surrounding society and forming a reliable network is essential. Social
networks facilitate access to information and influence the quality, quantity, and speed of
information reception thus help identify opportunities.
https://uconsulting.nl/publications/factors-influencing-entrepreneurship-development/

11 challenges facing entrepreneurship

Here are 11 challenges that entrepreneurs might face and how they might approach them:

1. Selecting a service or product

An entrepreneur may have the skills and passion to start a company, but one important factor in
starting a business is deciding what to sell. To start, they may identify a demand in their community
they could meet. A marketing firm or freelance researcher may help them conduct market research
to discover what needs there are and which ones they have the resources to address. For example,
an entrepreneur may learn that the people in their community drive out of town to get massages, so
they know there is a local demand for a spa that they could fill.

2. Developing a sales strategy

Though an entrepreneur may recognize an opportunity in a certain community, they might also
research the best way to sell to that community. They may hire a professional to create a marketing
plan or make one themselves. To do this, they can assess who their target audience is and what
strategy might best reach them. For example, if an entrepreneur opens a business in a rural
community where they know many people listen to the radio, they may develop a digital ad to
broadcast locally.

3. Establishing starting funds

For entrepreneurs who start with lower capital, there are ways to earn funding to get started. They
may begin with a traditional bank loan or a federal small business loan. If they plan to provide a
product or service that they know has significant demand already, they might start a fundraising
campaign. For entrepreneurs who would rather use a self-fueled growth model, they may start by
targeting a small audience and slowly building to serve larger client bases.
4. Maintaining a budget
Because running a company can be unpredictable, an entrepreneur can stay prepared by carefully
maintaining a budget. They may do this by prioritizing efficient marketing strategies and allocating
the rest according to their unique needs. Assessing which expenses are necessary may help
entrepreneurs adjust their funds to better prepare for changes. For example, they may observe that
there is a more affordable manufacturer they can use and reallocate those savings to address higher
utility costs.

5. Sustaining revenue
It's important for entrepreneurs to manage their organization's money carefully to account for any
potential delay in invoice payments. Aside from budgeting, entrepreneurs may charge a down
payment to ensure they can afford expenses until they receive full payment. By sending invoices as
early as possible and requesting payment as soon as they complete projects, entrepreneurs can
secure funding to keep operations running efficiently.

6. Staffing the organization

To make sure that they hire people who care about their organization's mission and will work hard,
entrepreneurs may oversee the hiring process. They may publish highly detailed listings to attract
candidates whose qualifications match the organization's specific needs. Before interviewing
anyone, they can develop questions to assess if the candidate might be a good fit for their
organization and if the role can help them in their career goals.

7. Managing employees
As the creators and leaders of an organization, entrepreneurs guide their employees on how to best
carry out the organization's goals. They can achieve this by developing clear, detailed instructions
for each role. When an entrepreneur effectively communicates the goals of the organization,
employees may better understand what they expect and what they're working toward. For example,
if the founder of a clean water initiative tells employees the story of why they started the company,
they may feel more inspired to work toward the common goal of providing clean water.

8. Expanding the business

After an entrepreneur establishes their business, they may reach a level of success where they want
to expand. This stage of managing a business entails many considerations, including figuring out a
way to address greater demand, researching new partners and reassessing their role in the company.
An entrepreneur may revise existing processes to better meet the company's needs. For example, if
a consulting firm uses software built for a smaller client list, they may upgrade to one that betters
suits a wider client base.

9. Managing time
Starting a new business and managing it creates many periodic tasks, so entrepreneurs may create
deadlines to help with prioritizing their obligations. Because their role can encompass many
responsibilities, entrepreneurs have several approaches they can take to manage time. One strategy
they can use is creating goals for themselves and others in the organization. They may assess which
tasks are absolutely necessary and which they can delegate.

10. Maintaining confidence

It can take a lot of confidence to start a company and just as much to run one. It's important for
entrepreneurs to maintain confidence so they can lead effectively and make appropriate business
decisions. Entrepreneurs may set long- and short-term goals to track and reflect on their success.
Keeping a community of supportive leadership and employees may also help. When an
entrepreneur is more confident, they may feel more prepared to address challenges.

11. Collaborating with partners

For entrepreneurs whose organization is doing well, they may consider partnering with other
professionals or businesses. Though this may help them allocate leadership responsibilities and
increase funding, there are many considerations. First, entrepreneurs can assess areas of
improvement, whether a partnership might help and also how their skills and personalities might
combine to benefit the organization. It's important to establish the terms of the partnership with a
lawyer to protect all parties' interests.
https://www.indeed.com/career-advice/career-development/challenges-facing-entrepreneurship

The following are seven ways to do just that--all entrepreneurs should be taking these
opportunities if they can.

Invest in Multiple Businesses

Most self-made billionaires are people who invested in many different business opportunities at
once instead of focusing on just one idea. While there are also plenty of business owners who have
focused on one idea and succeeded, it is harder to do this and if you fail, many more of your
resources are lost. For the first-time entrepreneur, instead of taking an idea from the ground up, it
may be more appealing to run other businesses and be a part of their inception, limiting your risk
without limiting your opportunity for profit.

Angel Investors
These investors are becoming more popular than venture capitalists in some industries, and the
money that comes from them generally has far fewer strings attached or expectations than bank
loans and money from venture capitalists. These investors can be great resources for the
entrepreneur looking to stress less about funding and focus on product and customer loyalty and
service, and angel investors are backing the market in a way that has not been seen before.

Crowdfunding
Another funding method that is changing the landscape of all industries' markets is crowdfunding.
Sites like Kickstarter have made it possible for entrepreneurs to circumvent the need for traditional
loans and investors and instead go straight to their customers to inquire about interest level and
garner the funds necessary to produce their wares and distribute them to interested parties. This has
encouraged more innovation and diversity in the marketplace, and has done quite a bit to level out
the playing field between competitors--and help to negate the edge that comes with being well
connected versus starting a business from next to nothing.

Startup Incubators
The founders of startup incubators function similarly to angel investors in that they provide many
resources for a startup to begin its journey with very few strings attached and kickback expected in
return. Though not all startup incubators operate in terms of funding, they can provide other much-
needed services like office space, professional seminars, access to industry professionals, or access
to the means of production to give startups of all kinds an opportunity to accomplish their mission.
These programs are highly competitive, however, and your startup will need to apply to take
advantage of them.

Quality Content
Producing quality content will always set your business ahead of the curve. Good content can be
found everywhere nowadays, and providing great content has become easier with the proliferation
of ghostwriting networking websites that also allow for quality designers and filmmakers to sell
their work to businesses looking to creatively reach out and connect with their customers. Making
good content is going to be your biggest in to making new sales, which means that producing good
content is an opportunity that every startup owner should be jumping on to give his or her business
an edge.

The Social Power of the Internet

Strategically placing your business and brand in the center of conversations and creating a culture
around your brand will effectively separate your business from your competition's by truly
connecting to customers on issues they care about.

Foreign Markets
Foreign markets, especially the Chinese one, have seen exponential growth in the past few years.
Any startup owners that know how to recognize this opportunity for what it truly is--access to the
largest market on earth--will be thanking themselves all the way to the bank.
https://www.inc.com/murray-newlands/7-awesome-opportunities-for-entrepreneurs.html

Entreneurial Process

Entrepreneurial process can be defined as the steps taken in order to establish a new enterprise. It is
a step-by-step method, one has to follow to set up an enterprise.
There are mainly five steps one needs to follow. These steps are −

 Preliminary steps
  Decision-making steps
 Planning steps
 Implementation steps
 Managerial steps

Preliminary Steps
Preliminary steps are the initial steps one has to follow for establishing a firm. At this stage, the to-
be entrepreneur should be able to make a decision that is going to affect the company.
We can say that an entrepreneur is born at this stage. An entrepreneur searches for business
opportunity and collects information/data from all sources available.

Decision-making Steps
Decision-making steps can be defined as those steps or say the lessons learnt by an entrepreneur to
make decisions efficiently.
In this step, the entrepreneur is seen consulting with DIC (District Industrial Centre) and MSME
(Medium Small & Micro Enterprise). Some of the decisions to be taken are −

 Decision of acquiring fund from banks or financial institutions.

 Acquisition of permission, recognition, application.

 Making of PPR (Preliminary Project Report).

 Decision regarding land, building, plant, machinery, labor, raw material, fuel, energy, water
supply, filtration, etc.
In order to make effective decisions that is adaptable and comfortable for the company, the clients
and all those who are directly or indirectly linked to the decision-making step play a very vital role.

Planning Steps
Planning is an assumption or prediction of business requirements and outcome in the future. It
provides a space to review the best strategy to run the business by cutting expenses and maximizing
profit.
Some of the planning steps include −

 Planning for infrastructure like plant and building.

 Getting permission and recognition from the government or any other reputed authority.

 Applying for environmental clearance.

 Purchasing of land and licensing of mines, if necessary.

 Applying for electric connection and water supply.

 Planning the final feasibility, technical feasibility, and operational feasibility.

  Study of PPR and preparation of Detailed Project Report (DPR).

 Getting loan and/or capital investment.

 Acquisition of machineries and planning for installation.

Now, let us move forward to see how this planning step is further transformed to implementation
steps.

Implementation Steps
Implementation is the execution of plan; it is the action taken to implement the plan so that
something actual happens.
Given below are some steps that will help us get a clear picture of how actions in planning steps are
groomed into implementation steps −

 Acquisition of land, setting up building, and purchasing raw materials.

 Installation of plant and machineries, and arranging human resource.

 Receiving permission and reorganization letter, and receiving capital investment.

 Starting operation and production.

 Arranging fuel, electricity, and water supply.

 Making infrastructural development, i.e. road, hospital, school, residence, etc.

Implementation is the most important and difficult step, during implementation the actuals come to
figure and something of real value is generated.

Managerial Steps
We have seen about the roles and duties of an entrepreneur. Managerial duties are also very
important for an entrepreneur as well as the organization. Some of the managerial duties to be taken
care of are −

 Preparing market policy and strategy.

 Managing promotion of product or services.

 Formulating pricing policy.

 Managing wholesalers and retailers.

 Deciding the profit margin.

 Managing marketing strategy, managing advertisement of product or service, managing

distribution system for efficient distribution.

 Warehouse management.
https://www.tutorialspoint.com/entrepreneurship_development/entrepreneurship_development_proc
ess.html
What’s it: Enterprise is a business organization. It comes from Old French, which means
“something done.” Those who start, operate, and run it are called entrepreneurs.

Enterprises operate to make a profit by producing goods or providing services. Then, they sell it to
consumers to satisfy their needs and wants. Consumers can come from households, businesses, or
other organizations.

Individuals who do so are called entrepreneurs. They turn an idea into a business. They plan, start,
and run businesses to make a profit. So, they can earn money and accumulate wealth by
commercializing their ideas. However, on the other side, they also have to bear the associated risks.

What are the types of enterprises?

Micro: less than 10 employees
Small: 10-49 employees
Medium: 50-249 employees
Large: more than 250 employees
Distinguished based on their legal structure within a particular jurisdiction. It can be:

Sole proprietorship
A sole proprietorship refers to a business structure owned and operated by an individual. It does not
result in a separate entity. So, the assets and liabilities of the business are entirely in your hands as
the owner.
You are fully responsible for the operation and success of the business. You have unlimited liability
for any business risks. So, you may have to sell personal assets to pay off company debt.
But, if your business is successful, the profit of the business is entirely yours. You do not have to
share it with others as in a partnership or only get a portion (dividends) as in a limited company.

Partnership
The ownership of the business is under two or more parties (partners). They work together to form
and run a business. Each partner contributes differently depending on the agreement.
Unlike sole proprietorships, partnerships allow for the pooling of greater resources and capabilities.
Each partner can bring certain resources, including capital and expertise, to lead the business to
success.
In addition, business risk is also spread among partners. Likewise, profits must also be shared
between them, the proportion depending on the partnership deed.
Private limited company
A private limited company implies a separate business organization from the owners (shareholders).
It is an incorporated business, unlike sole proprietorships and partnerships.
The owner assumes limited liability and is not personally liable for the financial and legal
obligations of the business. So, when businesses have difficulty paying debts, they don’t have to
pay off using their personal money. And, if the company closes, they only lose some of the money
they invested in the company.
The owner does not operate the business directly. Instead, they appoint a board of directors to run
the business, expecting the directors to act in their best interests.
Then, the owner is entitled to the company’s profits, but maybe not entirely. For example,
companies may only distribute a certain percentage of profits as dividends to them. And,
sometimes, companies don’t pay dividends at all, usually because they need an increase in internal
capital.

Public limited company

A public limited company has similar characteristics to a private limited company. The difference
between the two lies only in whether the company’s shares are available to the public for trading or
not.
Public limited companies list their shares on the stock exchange. So, people can trade it. In contrast,
private limited companies do not.
Then, shareholders in a public limited company have the potential to get dividends and capital
gains. When the company’s stock price rises, they can sell it and realize a profit.
Next, public limited companies are usually more transparent because they are bound by regulations.
For example, they must regularly publish their financial statements.

https://penpoin.com/enterprise/

Small scale industries are those industries in which production, manufacturing and providing the
services are executed on a small or micro scale.
In a country like India, the small scale industries play a very important role in generating
employment, improving the financial status of people, development of rural areas and removing the
regional imbalances.
Let us look into the roles and importance of small scale industries in India:
1. Employment generation: Small scale industries are one of the best sources of employment
generation in India. Employment is one of the most important factors that determines the growth of
a nation. Therefore, development of small scale industries should be encouraged for the
development of more employment opportunities in the nation.
2. Less Capital Requirement: Small scale industries are less capital intensive than the large scale
industries. Capital is scarce in developing countries like India and therefore, small scale industries
are most suitable for maintaining the balance.
3. Use of resources and development of entrepreneurial skills: Small scale industries allow for the
development of entrepreneurial skills among the rural population which is not having the scope of
large scale industries. These industries help in the appropriate use of the resources available in the
rural areas, which leads to development of rural areas.
4. Equal income distribution: Small scale industries by generating employment opportunities create
equal income opportunities for the youth of the underdeveloped areas. This leads to the growth of
the nation in terms of employment, human development.
5. Maintains regional balance: It has been seen that large scale industries are mostly concentrated in
the large cities or restricted to areas which leads to migration of people in search of employment to
these cities. The result of such a migration is overcrowding of the city and damage to the
environment. For sustaining a large population, more of natural resources need to be utilised.
6. Short production time: Small scale industries have a shorter production time than the large scale
industries which results in flow of money in the economy.
7. Supporting the large scale industries: Small scale industries help in the growth of the large scale
industries by producing ancillary products for the large industries or producing small components
that will be useful for the assembling of final products by the large scale industries.
8. Improvement in Export: Small scale industries contribute to around 40% of the total exports done
by India, which forms a significant part of the revenue earned from the exports. Small scale
industries work towards increasing the forex reserves of the country that reduces the load on
balance of payment of the country.
9. Reduce the dependence of agriculture: Most of the rural population will be dependent on
agriculture and this creates a burden on the agricultural sector. Small scale industries by providing
employment opportunities to the rural population provides more avenues for growth and also paves
way for a more arranged distribution of occupation.
This was all about the topic of Role and Importance of Small scale industries, which is an important
concept for the students of Commerce. For more of such interesting articles, stay tuned to BYJU’S.
https://byjus.com/commerce/role-and-importance-of-small-scale-industries/

SME

Merged Criteria: Investment (Plant & Machinery or Equipment) and Annual Turnover
Sector/Enterprise Type Micro-Enterprise Small Enterprise Medium Enterprise
Investment less than Rs. Investment less than Investment is less than
1 crore Rs. 10 crore Rs. 50 crore
Manufacturing &
Services Sector, Both Turnover less than Rs. 5 Turnover up to Rs. 50 Turnover up to Rs. 250
crore crore crore
Prime Minister Employment Generation Programme (PMEGP) - Setup with an aim to create
employment opportunities for MSMEs in the country, the PMEGP is implemented by Khadi and
Village Industries Commission (KVIC) at the national level while at the state and districts level, it is
implemented by State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs),
District Industries Centres (DICs) and banks. Credit Guarantee Trust Fund for Micro & Small
Enterprises (CGTMSE) - Established by M/o MSME and Small Industries Development Bank of
India (SIDBI) to provide collateral free loans (up to INR 1 cr) to individual Micro and Small
Enterprises (MSEs).
Interest Subsidy Eligibility Certificate (ISEC) - The scheme was introduced as a funding
mechanism for khadi programme undertaken by khadi institutions in the country. It mobilises funds
from banking institutions with an aim to fill the gaps between availability of funds from budgetary
sources and the actual fund requirements.

DEVELOPMENT OF KHADI, VILLAGE AND COIR

INDUSTRIES

Several schemes have been launched for the development of

MSMEs operating under the Khadi, Village and Coir
Industries in the country. These include the following:
1. Market Promotion & Development Scheme (MPDA)
2. Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI) -
3. Coir Vikas Yojana (CVY)
4. Export Market Promotion (EMP)
5. Domestic Market Promotion (DMP)
6. Trade and Industry Related Functional Support Services (TIRFSS)
7. Welfare Measures (Pradhan Mantri Suraksha Bima Yojana (PMSBY)

TECHNOLOGY UPGRADATION AND QUALITY

CERTIFICATION
 Financial Support to MSMEs in ZED Certification Scheme - Supporting the ‘Make in
India’ initiative, the aim of the scheme is to inculcate Zero Defect & Zero Effect (ZED)
practices in manufacturing done by Indian MSMEs. Under the scheme, the Government of
India (GoI) provides up to 80% subsidy to MSMEs.

 A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE) –

The main objectives of the scheme are to:
1. Create new jobs
2. Promote entrepreneurship
3. Boost economic development at grass root level
 4. Facilitate innovative business solutions
5. Promote innovation

 National Manufacturing Competitiveness Programme (NMCP) - An umbrella scheme

which aids MSMEs through the following sub schemes:
1. Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)
2. Financial Assistance on GS1
Barcodes for Micro Enterprises
3. Lean Manufacturing Competitiveness for MSMEs
4. Design Clinic for Design Expertise to MSMEs
5. Technology and Quality Upgradation Support to MSMEs
6. Entrepreneurial and Managerial Development of SMEs through Incubators
7. Enabling Manufacturing Sector to be Competitive through Quality Management
Standards (QMS) and Quality Technology Tools (QTT)
8. Building Awareness on Intellectual Property Rights (IPR
Partnership Firm
A partnership firm is a type of business formed by two or more persons who agree to share their
business profits and losses in a predetermined ratio, regardless of the circumstances.
To this day, the limited liability partnership (LLP) model is the most popular type of partnership.
While the Limited Liability Partnership (LLP) founded legal recognition quite recently, the
Partnership Act was passed in 1932, demonstrating that partnership enterprises have been desired
and trusted for a very long time now.
No one is excluded from becoming a partner. Partners could be friends, relatives, coworkers, or
even complete strangers who share common goals, interests, and trust.
In a recent judgment, the Supreme Court distinguished between the retirement of a partner and the
dissolution of a partnership company. The Court has said that when there are only two partners in a
partnership company, the retirement of one partner will amount to the dissolution of the company.

Types of Partnership Firms

To start a business in the form of a partnership, the only condition is to form and finalize a
partnership deed under the Indian Partnership Act, 1932.
There are two types of Partnership Firms:

 Unregistered partnership firms and,

 Registered partnership firms
There is no requirement to register a company in order to start a business, and there is also no
penalty for failing to do so. It is entirely up to the partners and business owners to make this
decision. Even once the company is constituted, it can be registered. An unregistered firm’s only
disadvantage is that it is not entitled to the benefits and rights provided under Section 69 of the
Partnership Act.
However, it is always recommended to register the firm sooner or later to legalize it and enjoy the
various rights offered under the Act.

What is a Partnership Deed and How is it Formed?

A Partnership Deed is a type of contract that lays down and mentions all the rights, duties and other
formalities regarding the partners and the company.
The details that you should mention in the firm registration online are as follows:

 Name of the partners.

 Name and type of business along with the capital contributions made by each partner.
 The ratio of profit and loss sharing among the partners.
 Rights and duties of each partner.
 The processes to be followed and the rules for the operation of the firm.
Partners themselves can also decide if any other information or clause needs to be included.

Partnership Company Formation

The registration of a partnership firm is a simple and straightforward procedure. The Indian
Partnership Act, Section 58, governs its registration. Depending on where the firm is located, the
process entails submitting application paperwork and fees to the Registrar of Firms in that particular
state. All the partners of the firm must also sign the application and provide their consent.
The firm is registered in the entry of statements, and the registration certificate is finally issued in
the name of the firm after the Registrar of Firms has cross-verified the application for registration as
per the provisions under Section 58 and found it to be complied with.
As the Registrar of Firms and the Income Tax Filing Department are two different bodies, the firm
must apply for registration in both. Along with this, it is also mandatory for the firm to have their
PAN card. Such that further opening of bank accounts, complex financial processes, and
transactions are made in a timely manner.

https://vakilsearch.com/blog/partnership-company-formation/

The Partner’s Capital Account is an account that records all the transactions between the
Partnership firm and the partners to evaluate the partners’ share in the firm (Partners’ investment) at
the end of the accounting period. The partners’ capital account is adequately maintained to ensure
transparency and accuracy between the firm and the partners and among the partners.

Methods of maintaining Capital Account:

The Capital Account can be maintained in either of the two ways mentioned below:
1. Fixed Capital Method: Under Fixed Capital Method, the initial capital introduced by the
partners at the beginning is considered to be fixed throughout the lifespan of the firm, except in the
event of Additional capital introduced and permanent withdrawal of the capital (drawings).
2. Fluctuating Capital Method: Under this method, the capital balance of each of the partners
fluctuates continuously and is not fixed. The capital account is affected by each and every
transaction between the firm and the partners.

Fixed Capital Method:

Under the fixed method of maintaining partners’ capital accounts, the initial capital invested by the
partners remains constant throughout the lifetime of the business. The capital is affected only when
additional capital is introduced by the partner or the capital is withdrawn by the partner. Under this
method, two accounts are prepared:

 Capital Account: The Capital Account records only those transactions that are related to
capital or change in the capital (Additional Capital and Drawings). In the capital account, the
capital brought in by the partner is credited and any drawing is debited.
 Current Account: A separate account known as a Current Account or Drawings Account is
opened to record all the other transactions related to partners, such as Interest on capital,
Interest on drawings, salary, Profit/loss share, etc. Any income or profit of the partner is
credited, and any expense or loss is debited to the current account.

Steps of Fixed Capital Method:

The preparation of a capital account under the Fixed Capital Method involves the following steps:
Step 1: Firstly, prepare a Capital Account, and credit the initial and subsequent capital contribution
by the partner. Any drawings from the capital are recorded on the debit side of the capital account.
Step 2: Then prepare a Current Account. All the Receipts related to partners are recorded on the
credit side of the current account, such as Interest on capital, the salary of the partner, the profit
share of the partner, commission, and so on.
Step 3: The debit side of a current account records all the expenses or liabilities related to the
partner, such as Interest on drawings.
Step 4: The profit is distributed according to the profit sharing ratio. The profit is credited, and the
loss is debited, respectively.
Step 5: Then the closing capital of the partner is calculated by subtracting the debit side of the
current account from the credit side. The closing balance is then transferred to a Balance sheet as a
partner capital account.

What is a limited company?

Definition of a limited company
A limited company is a type of business structure where the company has a legal identity of its own,
separate from its owners (shareholders) and its managers (directors). Even if a company has only
one individual involved with it and that person is the only shareholder and the only director, the
company is still a separate legal entity.
That means the company can enter into contracts, and be sued, in its own right. In the event that the
company is sued, its directors and shareholders do not have to sell their own assets to pay the debt,
unless, in the case of directors, they have been found guilty of wrongdoing or have given personal
guarantees.
This legal separation means that directors and shareholders cannot take money out of the company
whenever they want. Money the company earns from sales belongs to the company, not to the
individuals.
The company must file accounts and a confirmation statement each year with Companies House.
These are then available for public viewing.
The company must also file a Corporation Tax return with HMRC every year.
Find out more about the differences between limited companies and sole traders.

Example of a limited company:

Emily is the sole director and shareholder of a company called Accounts in English Ltd. When the
company makes a sale, that money belongs to the company.
Accounts in English Ltd can pay Emily a salary as a director, or it can pay her dividends as a
shareholder if it has enough profit to do so, or it can repay her for any business costs she pays for
personally. Apart from that, if she takes any money out of the company's bank account, there may
be extra tax to pay.

https://www.freeagent.com/en/glossary/limited-company/

Requirements to start a Private Limited Company

Every business type has its own set of requirements before it is incorporated. The requirements for
registering this are as stated below:

1. Members and directors

As mentioned above, to get itself legally registered, a private limited company must show a
minimum number of two and a maximum number of 200 members. This is a statutory requirement
as mandated by the Companies Act 2013.
The directors should meet the following conditions:

 Each of the directors should have a DIN i.e. director identification number, which is given
by the Ministry of Corporate Affairs
 One of the directors must be a resident of India, which means he/she should have stayed in
India for not less than 182 days in the previous calendar year
2. Name of the company
Choosing the name of the company is often a technical task. A private limited company is required
to cover three aspects while deciding a name for itself:
1. Main name
2. Activity to be carried out
3. Mention of ‘Private Limited Company’ at the end.
Pro tip: It is not always necessary that the name the business owner is looking for will be available,
as no two companies can have the same name. Therefore, it is a requirement that at the time of
registration, every company has to send 5-6 names for approval to the Registrar of Company
(ROC). Moreover, the submitted names should not have a close resemblance with any other
company’s name.

3. Registered office address

After the company has been registered, the permanent address of its registered office must be filed
with the registrar of the company. The registered office of the company is where the company’s
main affairs are being conducted and where all the documents are placed.

4. Obtaining other documents

For electronic submission of documents, every company must obtain a digital signature certificate
that is used to verify the authenticity of the documents. Moreover, in a company employing
professionals (secretary, chartered accountant, cost accountant, etc.) for varied activities,
certifications by these professionals is necessary.

Advantages of Private Limited Companies

1. Limited liability: In a private limited company, there is a limited liability, which means the
members of the company are not at the risk of losing their private assets. If a company fails,
the shareholders are liable to sell their assets for payment
2. Less number of shareholders: Unlike a public company that requires seven shareholders, a
private limited company can be started with just two shareholders
3. Ownership: As the company’s shares are owned by investors, founders, and management,
the owners are at the liberty of transferring and selling their shares to others
4. Uninterrupted existence: As mentioned earlier, the company stays a legal entity until it is
legally shut down, the company runs even after the death or departure of any member

Disadvantages of Private Limited Companies

One of the disadvantages it gets with Pvt ltd company is the compliance formalities for shutting it
down. It often ends up getting too complicated and time-consuming.
https://razorpay.com/learn/what-is-a-private-limited-company/
There is a massive spurt in the number of Private Company Registration in the country during the
first nine months of the financial year. The latest data available with the Ministry of Corporate
Affairs (MCA) showed that the number of companies incorporated during April-December 2020
went up by nearly 21% to over 1.1 lakhs, compared to a 5.2% increase witnessed during the
corresponding nine-month period in 2019.The capital structure of a company can affect its ability to
access funding, its cost of capital, and the risk profile of the company.
While the Companies Act, 2015 removed the requirement for minimum paid-up capital, they still
have to have the required Company’s Capital for company registration. Further, let us now take a
look at the authorized capital requirements for company registration, and the difference between
capital authorised and paid-up capital.

What Makes up a Company’s Capital Structure?

A company’s capital structure is the way in which it finances its operations through a combination
of debt and equity. A company’s capital structure can be divided into two categories:
Company’s capital is the maximum portion of the capital for which the company may issue shares
to its shareholders or promoters. The authorized capital structure of business incorporation is a part
of its memorandum of association under the capital clause. This is usually decided before
incorporation. However, companies do have the option of raising their capital in the future by
following specific steps.
For instance, imagine a company named ABC Pvt Ltd has an company’s capital amounting to ₹20
lakhs and has issued shares for ₹15 lakhs. Likewise, in such a case, it can issue shares for ₹5 lakhs
without raising. However, once it exceeds ₹20 lakhs, it will have to increase its authorized capital
before it issues any more shares to its benefactors and shareholders.

Paid-up Share Capital

Paid-up share capital is the amount for which the company issued shares to shareholders after they
made the necessary payment to the company. Moreover, for any company at any given time, the
paid-up capital must either be less than or equal to its capital. Also, the company cannot issue shares
beyond its capital limit. Additionally, the paid-up capital must be deposited in the company’s
account within 30 days of allotment of the shares. Due to the enactment of the Companies
Amendment Act 2015, there is no longer a minimum capital requirement for a private limited
company.
Similarly, there is no minimum paid-up capital of a public company either, as they may be formed
with even ₹1000 as paid-up capital. Further, to change the minimum paid-up capital for a company,
the ROC must be updated, and the data regarding the update becomes a part of the company’s
master data.
Subscribed Capital
Subscribed capital is a part of the paid-up capital or issued capital that the shareholders have agreed
to contribute through payment. As a result of partial commitment, the shareholders are only liable
for the unpaid amount on the shares subscribed.

Can Issued Capital Exceed Authorized Capital?

Before starting any company, private or public, the investors and promoters need to decide on its
company’s capital amount. This is because the Share capital authorised limit establishes how many
shares they will receive as a result of their investment in the company. Further, Issued or
outstanding shares are the shares that have been issued by a company to its shareholders. Therefore,
since the authorised sets the limit for the value of such shares, the paid-up or issued capital can
never exceed the company’s capital.
https://vakilsearch.com/blog/what-makes-up-companys-capital-structure/

Governing Act and Rules

Before we proceed, let us grasp the basic rules and provisions w.r.t funding modes for the Private
Limited Company. All the company’s funding provisions are mentioned under Section 73 of the
Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014. Rule 2(1)(c) of the
Companies (Acceptance of Deposits) Rules, 2014 elaborate the term ‘deposit’ and the same render
the brief list of exempted deposits which are –

 Receiving any amount via State or Central Government.

 Receiving any amount via any company.
 Receiving any amount via directors or their relatives.
 Receiving any amount via FEMA governed bank or foreign bank.
 Receiving any amount via Public Financial Institutions.
Any fundraising of the private company seeks the approval of core members via Board’s
Resolution, as per Section 179 (3) of the Companies Act, 2013

Funding alternatives for Private Limited Company

Funding in a Private Limited Company usually can get accomplished in two ways.

 Internal– The additional issue of share capital, deposits availed from the members, deposits
done by the director.
 External – Bank finance, angel investors, venture capital, etc.

Internal funding options

An additional issue of share capital
When it comes to Funding in Private Limited Company, the issuing of additional share capital is
regarded as one of the most suitable options. It could help the company to raise the fund in no time
and render better incentives to the shareholders. However, the company needs to ensure conformity
with section 62 of the Companies Act, 2013, to serve this purpose.

Deposits from Directors and their Relatives

Deposit from Directors and their relatives is another source of Funding in Private Limited
Company. However, this nature of fundraising is subjected to the following conditions. The relevant
directors must give a written declaration regarding their assurance w.r.t the nature of fundraising. If
the acquired funds were raised through the others, then it shall not be accepted as a deposit.
Moreover, the detail of such a deposit needs to incorporate in the Board’s report.

List of the eligible depositors serving as Directors relative

 Members of a Hindu Undivided Family
 Son, including stepson
 Father, including stepfather
 Spouse of Director
 Mother, including the stepmother
 Brother, including stepbrother(s)
 Daughter, including stepdaughter
 Daughter’s husband
 Son’s wife
 Sister, including stepsister(s)

Deposits from its employee

Fundraising via employee’s deposit in another conducive method of Funding in Private Limited
Company. Such deposits cannot exceed the threshold of an employee’s annual salary as per the
given provisions.

Deposits from its members

Section 73 (2) of the Companies Act, 2013, has a provision for Funding in Private Limited
Company via member’s deposits. The following conditions need to be fulfilled in this aspect.

 A circular must be distributed about the same among the core members. The circular must
cover the following aspects:
 Company’s credit rating
 List of depositors
 The amount due to the previous deposits.
 The circular’s copy ought to be submitted to Registrar within thirty days prior date of the
issue of such circular.
 The sum of such a deposit should not be less than 20% of the sum of the deposit maturing in
the bank account, aka deposit repayment reserve account. Such deposits are time-dependent,
which needs to be procured, on or before April 30 every year.
  Certifying that the firm has not breached repayment’s provisions w.r.t deposit accepted and
interest paid on such deposits.
The provisions above do not apply to the following private companies:-
1. The company’s loan amount from its member is well behind the threshold of 100% of paid-
up capital, Securities Premium account, and free reserves.
2. The Private Limited Company is not older than five years.
3. The Private Limited Company that covers the given conditions –

 The company should be a sole-runner instead of an associate or a subsidiary.

 The total amount of raised funds is lower of Rs 50 Crore or the twice of its paid-up capital.
 The company is not involved in the violation of repayment terms w.r.t existing borrowings.

External funding options

A loan from financial institutions: Fundraising via banks and other financial institutes is the most
preferred way of money borrowing. Someone with a better credit record and market repo can easily
raise loans from banks compared to other options, where money security is a major concern.

Private Placement of Shares

As per Section 42 of the Companies Act, 2013, private placement of shares to a selected group can
also be a part of the fundraising strategy. Section 14 of Company Act 2013 and Companies
(Prospectus and Allotment of Securities) Rules, 2014 cover the provisions for such arrangement.

Key factors
 A shareholder’s approval is a must when it comes to allotment of share. The Company Act
directs companies to resolve such matters at a board meeting.
 The private allotment of shares shall be conducted as a trusted person; someone is known for
years and had a stringent relationship with the company.
 The professional dealing with the securities under a scheme w.r.t employee’s stock option
cannot be a part of such purpose.
 Threshold w.r.t allotment of share, in this case, is limited to 200 in a financial year.
This provision acts differently in case of allotment of securities. Such a section seeks approval of
Registrar after the submission of relevant documents illustrating the detail regarding security
holders, basic info, and the number of security.

Angel Investors and Venture Capital

Angel investors and venture capital also act as funding options available for private limited
companies. The angel investors represent the groups of individuals, whereas the Venture capital is a
company holding that seeks ownership stake in exchange for lending required fund

https://corpbiz.io/learning/private-limited-company-funding-sources/
Co-operative Societies – Meaning and
Formation
Co-operative societies are profit-oriented entities which aim to obtain marketability for the products
produced by agricultural and other labour-intensive businesses. Based on the recommendations of
the Mirdha Committee and the Model Co-operative Societies Act, the Government of India passed
the Multi-State Co-operative Societies Act in 2002 which provided for a democratic and
autonomous working of the Co-operatives. This article mentions the essential aspects of Co-
operative Societies in India.
A co-operative society is often a voluntary association of individuals who come together with the
intention to work together and to promote their economic interest. These societies work on the
principle of self-help as well as mutual help. The primary goal is to provide support to the members.
Nobody leaves a co-operative society without earning a profit. People of the same interest come
forward as a group, pool their resources, utilise these resources in the best possible manner and
derive a common benefit out of it. It is an association of persons who voluntarily share their
resources for using them for the mutual welfare of its members itself. A co-operative society is
formed for the promotion of thrift, self-help and mutual assistance of the members.
A co-operative society may be governed by the respective state’s Co-operative Societies Act or by
the Multi-State Co-operative Societies Act, 2002. The societies whose primary objective is to serve
the interests of its members in a particular State are governed by the co-operative societies Act of
that specific state. While, a Society whose primary objective is to serve the interests of its members
in more than one state, is governed by the Multi-State Co-operative Societies Act of 2002. The
National Co-operative Union of India (NCUI) and the National Co-operative Development
Corporation (NCDC) are the essential agencies working for the promotion of co-operative
movement in India.

Objectives of Co-operative Societies

The following are the primary objectives of co-operative societies:
1. Promotion of cooperative movement.
2. To encourage and promote the growth of co-operative societies.
3. Render services, not for profit.
4. Mutual help, not competition.
5. Self-help, not dependence.

Co-operative Societies under the Income Tax Act

As stated in Section 2(19) of the Income Tax Act, 1961, “Co-operative Society” means a co-
operative society officially registered under the co-operative societies Act, 1912 (2 of 1912), or
under any other declared law for the time being in force in any State for the registration of co-
operative societies. According to the Co-operative Societies Act of each State, a Co-operative
Society registered within any State under the law of that particular State is not allowed to operate in
any other State without the permission and sanction of the Government or Registrar of co-operative
societies of that State. In the case of a Multi-State co-operative society, it can work in more than one
State as a matter of right, under the Act and the permission of any other State is not required to do
its business.

Eligibility
The following are the individuals who may become members of a Co-operative Society at the State
level as per the State Act.
1. An individual competent to contract, attained majority and is of sound mind and belongs to a
class of persons if any for whom the society is formed as per its bye-laws.
2. A society registered or deemed to be so under the Co-operative Societies Act.
3. The Central Government and any State Government, or the Government of a Union
Territory

Checklist to Form a Co-operative Society

The following are the steps involved in establishing a Co-operative Society under the State Act.

 The prescribes application duly filled in shall be made to the Registrar of Co-operative
Societies.
 The application should be attached along with four copies of the proposed bye-laws of the
co-operative society.
 All the applicants must be individuals, and the number of applicants shall be above ten.
 All the applicants should sign the application if the applicants are individuals.
 If the applicant is a society by itself, then by a member duly authorised by such society.

Types of Co-operative societies

There are different types of co-operative societies registered under the Co-operative Societies Act,
1912. A few are as follows.

 Housing Society
 Producer’s Society
 Agricultural Marketing Society
 Consumers Society
 Co-operative Bank
 Federal Society

Laws Regulating Co-operative Societies

The following laws govern the functioning of Co-operative Societies in India.
1. State Co-operative Societies Acts of individual states.
 2. Multi-State Co-operative Societies Act, 2002 for the Multi-State Co-operative Societies with
an area of operation in more than one state.

Taxability
The co-operative society is a separate entity under the Income Tax Act of 1961. However, it is not
explicitly mentioned either in the definition of ‘assessee’ or the ‘person’. One has to look for the
provisions of Section 80P which provide tax incentives to co-operative societies to find out whether
co-operative society is an ‘assessee’ or not. As per the section, since co-operative societies are
explicitly mentioned for the availability of exemption benefit, it can be inferred that co-operative
societies are also assessees within the meaning of the Act. Taxpayers should remember that the co-
operative societies do not enjoy complete exemption from taxes. They are entitled to certain
specified deductions from the total gross income. The total gross income is determined in the same
way as in the case of any other assessee. That is, the income is computed under specified heads of
income and then aggregated to arrive at Gross Total Income. In the case of a co-operative society,
the total income is computed as in the case of any other assessee. From the Gross Total Income, the
deductions available under Section 80 are deducted to arrive at Total Income. The deductions under
Section 80 may be grouped into two for convenience.

 General Deductions: The deductions available to all the assessees including co-operative
society.
 Specific Deductions: The deductions available individually to a co-operative society.

Incomes of a Co-operative Society

A co-operative society may mainly have the following types of income.

 Interest on Securities
 Income from House Property
 Capital Gains Income
 Income from Business
Most of the societies, nowadays are found to be carrying on business activities. The profits and
gains from such business by society are to be determined according to the regularly employed
method for such computation and according to accepted commercial principles. The approach
adopted by society must be consistently followed every year. Thus, a co-operative society may
adopt a cash basis method or a mercantile basis method. What is important is that the same system
should generally be continued.

https://www.indiafilings.com/learn/formation-of-co-operative-
societies-in-india/