Study Notes: Entrepreneurship Development

STUDY NOTES
ENTREPRENEURSHIP DEVELOPMENT
(RMB402)
MBA Semester IV
(Session 2017-2018)
Prepared By
Mr. Amit Kumar Dubey
Assistant Professor
BORA INSTITUTE OF MANAGEMENT

SCIENCES LUCKNOW
COLLEGE CODE: 567
ENTREPRENEURSHIP DEVELOPMENT (RMB402)
UNIT I
ENTREPRENEURSHIP
DEVELOPMENT
The concept of entrepreneurship is a complex phenomenon. Broadly, it relates to the entrepreneur, his vision and its
implementation. Entrepreneurship is a composite skill, which include imagination, readiness to take risks, ability to bring
together and put to user other factors of production, capital, labour, land, and also intangible factors such as the ability to
mobilize scientific and technologic advances. One of the qualities of entrepreneurship is the ability to discover an investment
opportunity and to organize an enterprise, thereby contributing to real economic growth. It involves taking of risks and making
the necessary investments under conditions of uncertainty and innovating, planning and taking decisions.
Q: Who is an Entrepreneur?
ENTREPRENEUR
The word entrepreneur originates from the French word, entreprendre, which means "to undertake."
The term entrepreneur was first used by Richard Cantillon in his essay on “The Nature of Commerce” (1755).
According to him an entrepreneur was one who buys factor services at certain prices in order to combine them to
produce a product and sell it at uncertain prices at the moment at which he commits himself to his costs. This analysis
recognizes that an entrepreneur has the willingness to bear risk. Cantillon viewed the term entrepreneur from the
supply side and ignored the demand side.
According to F. H. Knight entrepreneur refers to be a specialized group of persons who bear uncertainty.
Uncertainty is defined as a risk which cannot be insured against and is incalculable whereas risk can be reduced
through insurance. Hence, Entrepreneur is the economic functionary who undertakes such responsibility of uncertainty
which by its varying nature can’t be insured or capitalized or salaried too.
According to Jean Baptiste Say, Entrepreneur is an economic agent who units all means of production land of one,
labour of another and capital of yet another and thus produce a product. By selling the product, he pays rent of land;
wages to labour, interest on capital and what remains is his profit. Thus a capitalist provides finance whereas
entrepreneur is an organizer. He coordinates, organize and supervise.
According to Joseph. A. Schumpeter, an entrepreneur is one who seeks to reform or revolutionize the pattern of
production by exploiting an innovation or more generally an untried technology and the possibility for producing a
new commodity or producing an old one in a new way by opening up a new source of supply of material or new outlet
of products. Thus, an entrepreneur is one who innovates raises money, collect inputs organize talents, provides
leadership and sets the organization in proper order.
Schumpeter made a distinction between inventor and innovator as an inventor is one who discover new methods and
new materials and Innovator utilizes invention (or discoveries) in order to make new combinations.
According to Schumpeter innovation may occur in following forms:
• New product in market.
• New production technology.
• Opening of new market into which the specific product has not previously entered.
• Discovery of new source of raw material.
• Carrying new form of organization of a business venture.
According to Adam Smith, father of political economy, entrepreneur has a role of industrialist, who forms an organization for
commercial purpose- he is proprietary capitalist, supplier of capital and at some time a manager.
According to management guru Peter F. Drucker, entrepreneur is one who always searches for chance, responds to it and
exploits it as an opportunity.
According to ILO (International labour prganisation), entrepreneur are people who have ability to see and evaluate business
opportunities; together the necessary resources to take advantage of them; and to initiate appropriate action to ensure success.
In USA entrepreneur are one who discovers new ideas, organize the business and often manage its operations to provide
economic goods and services for the public.
Amit Kumar Dubey (Asst. Prof.) Page 2

In oxford English dictionary, entrepreneur is one who undertakes an enterprise, especially a contractor acting as intermediary
between capital and labour.
CONCLUSION: A person who tries to create something new, organizes production and undertakes risks and handles economic
uncertainty involved in enterprise is an entrepreneur.
Example: JamshedJi Nausser Wanji Tata, G.D. Birla, Jamnalal Bajaj, Dhirubhai Ambani etc.
Q: Discuss the evolution of the concept of entrepreneur.

EVOLUTION OF THE CONCEPT OF ENTREPRENEUR
In the year 1725 the word entrepreneur was first brought into economics by a social scientist named Richard cantilion. The
expert who invented the theory of entrepreneurship was David mc cellion in 1961.
The word ‘entrepreneur’ is derived from the French word entreprendre. It means ‘to undertake’.
Thus, entrepreneur is the person who undertakes the risk of new enterprise. Its evolution is as follows.
EARLY PERIOD: The earliest definition of the entrepreneur as a go-between is Marco Polo. He tried to establish trade
route to the Far East. He used to sign a contract with a venture capitalist to sell his goods. The capitalist was the risk
bearer. The merchant adventurer took the role of trading. After his successful selling of goods and completing his
trips, the profits were shared by the capitalist and the merchant.
MIDDLE AGES: The term entrepreneur was referred to a person who was managing large projects. He was not taking
any risk but was managing the projects using the resources provided. An example is the cleric who is in charge of
great architectural works such as castles, public buildings, cathedrals etc.
17th CENTURY: An entrepreneur was a person who entered into a contractual arrangement with the Govt. to perform
a service or to supply some goods. The profit was taken (or loss was borne) by the entrepreneur.
18th CENTURY: It was Richard Cantillon, French Economist, who applied the term entrepreneur to business for the
first time. He is regarded by some as the founder of the term. He defined an entrepreneur as a person who buys factor
services at certain prices with a view to sell them at uncertain prices in the future
19th CENTURY: The entrepreneurs were not distinguished from managers. They were viewed mostly from the
economic perspective. He takes risk, contributes his own initiative and skills. He plans, organizes and leads his
enterprise.
20th CENTURY: During the early 20th century Dewing equated the entrepreneur with business promoter and viewed
the promoter as one who transformed ideas into a profitable business. It was Joseph Schumpeter who described an
entrepreneur as an innovator. According to him an entrepreneur is an innovator who develops untried technology.
21th CENTURY: Research Scientists live De Bone pointed out that it is not always important that an individual comes
up with an entirely new idea to be called an entrepreneur, but if he is adding incremental value to the current product
or service, he can rightly be called an entrepreneur.
Q: Discuss the characteristics of an entrepreneur.

CHARACTERISTICS OF AN ENTREPRENEUR
An entrepreneur is a highly achievement oriented, enthusiastic and energetic individual, who has following characteristic:
1. Calculated Risk Taker
2. Innovator (Schumpeter)
3. Organiser (J.B. Say)
4. Uncertainty bearer
5. Creative
6. Self-confident
7. Optimistic
8. Decision maker
9. Action oriented
10. Visionary

11. Business planner

12. Opportunists
13. Stress taker
14. Leadership
15. A venture capitalist
Mc Clelland discuss following qualities or characteristics:

• Mental ability
• Clear objective
• Business secrecy
• Human relation ability
• Communication ability
• Technical knowledge
Robert H. Hisrich
• Motivator
• Self-confident
• Long-term involvement
• High-energy level
• Persistence problem solver
• Initiative
• Goal setter
• Moderate risk taker
• Leadership
Q: What are the functions that are performed by the entrepreneur?

FUNCTIONS OF AN ENTREPRENEUR
It was Cantillon who separated the entrepreneur from the capitalist and recognized it as a separate factor of production having
definite functions to perform in the economy.
Marshall felt that the important functions of an entrepreneur are organization and management of the productive enterprise.
J.B. Say and Cantillon felt that risk-taking was the most important function. Prof. B.R. Knight conceived the dual functions of
risk taking and control. Schumpeter identified the entrepreneur with innovation. A careful analysis of all these theories shows
that the entrepreneur has to perform one or more of the functions outlined in these theories.
An entrepreneur has to perform the following functions as a vital factor of production:
• Risk taking and Uncertainty Bearing: The future is unpredictable. The entrepreneur has to take risks in these
circumstances. If the venture succeeds, the entrepreneur profits; if it does not, losses occur. Thus, taking risks forms
an important entrepreneurial function. Risks are of two types - insurable and non-insurable. Non-insurable risks are
the possibility of changes in the tastes and preferences of the consumer, techniques of production and so on. These
non-insurable risks are called uncertainties. Uncertainty-bearing in thus an integral part of the entrepreneurial function.
The entrepreneur makes use of his initiative, skill and good judgement to reduce the uncertainties of business.
• Taking Business Decisions: All decisions concerning business are taken by the entrepreneur. Once the entrepreneur
is convinced that a particular line of production offers large prospects of profit, he decides to enter it. He has to
formulate an action plan regarding the product and the quality of the product to be produced. He has to evolve the best
possible method of production which would earn him a sizeable profit. Suitable changes in the size of the business
have to be effected by him. Employment of personnel, choosing the location for the production unit and everything
that is needed for the development of the business has to be decided by him.
• Managerial Functions: The entrepreneur combines in him managerial functions, though they are strict1y different
from the standard entrepreneurial duties. The entrepreneur arranges finance, purchases raw materials, provides the

necessary infrastructure for production, supervises sales and marketing and also assumes the role of the personnel
manager. The entrepreneur thus has a multi-faceted personality when he undertakes managerial functions.
• Innovation: By far the most important function of an entrepreneur is innovation. Here he introduces far-reaching
improvements in the quantity and quality of the production line. He considers the economic viability and technical
feasibility of an invention. It is this function of the entrepreneur which injects the element of dynamism into the
economic system.
Arthur H. Cole has described an entrepreneur as a decision-maker and attributed the following functions to him:
• The determination of those objectives of the enterprise and the change of those objectives as conditions required or
made advantageous;
• The development of an organization, including efficient relations with subordinates and all employees;
• Securing adequate financial resources, and maintaining good relations with the existing and potential investors;
• The requisition of efficient technological equipment and the revision of it as new machinery appeared;
• The development of a market for the products and the devising of new products to meet or anticipate consumers’
demand;
• The maintenance of good relations with public authorities and with the society at large.
The functions of an entrepreneur with reference to the underdeveloped countries include wide range of activities has been
provided by Kilby:
1. Management of scarce resources.
2. Dealing with public bureaucracy (licenses, taxes).
3. Acquiring and overseeing assembly of the factory.
4. Industrial designing and engineering.
5. Marketing of product and responding to competitions.
6. Industrial new product.
7. Perception of market opportunities (novel or imitative).
8. Financial and production management.
9. Management of customers and supplies relations.
10. Management of scarce resources.
In another way we can group the function of entrepreneur as follows:

(I) Primary Function
(II) Other Function
(III) Functions Important for developing countries
(I) Primary functions:-

(a) Planning:- Planning process covers steps:-
Scanning of the best suitable idea.
Selection of product line.
Determination of business organization.
Estimation of the capital needed.
Selection of capital resources Selection
of location.
Studying the govt. rules relations & policies.
Selecting the way to fulfill the govt. facilities.
Study of availability of work force.
Study of market strategy to be adopted.

(b) Organizations: - co-coordinators- land, labour and capital.

(c) Decision – Making:-
- Determination of the business objectives of the enterprise.
- Decision regarding procurement of machine, material, men, money and market.
- Decision regarding requisition of efficient technology & new equipments.
- Decision regarding development of a market for the product.
- Maintenance of good relations with public authorities & with society at large.
(D) Management: - Men, Machine, Material, Money, Land, Labour & Capital for the enterprise.
(E) Innovation: - Implies “doing of new things or doing of things that are already being done in a new ways”.
Schumpeter 5 Forms:-
- Launching of new product in the market.
- Introduction of new technology in the production.
- Creation of new market
- Discovery of new & better resources of raw material.
- Creation of monopoly or breaking up monopoly. (F) Risk Baring
(G) Uncertainty Bearing (Trade Credits, trends of market.)
(II) Other Functions:-
(a) Diversification of production
(b) Expansion of the enterprise
(c) Maintaining cordial employer-employee relations (d) Tackling of labour problems.
(e) Co-ordination with outside agencies.
(III) Entrepreneurs Function
(a) Idea generation
(b) Determination of objectives
(c) Raising of funds
(d) Procurement of raw material
(e) Procurement of machinery
(f) Market research
(g) Determination of form of enterprise
(h) Recruitment of manpower
(i) Implementation of project
(IV) Functions Important for developing countries
(a) Management of Scarce resources
(b) Dealing with public bureaucracy
(c) Acquiring & overseeing assembly of this factory
(d) Industrial designing & reengineering
(e) Marketing of product and responding to competitions.
(f) Industrial new product.
(g) Perception of market opportunities
(h) Financial & Production Management
(i) Management of customers and suppliers relations
(j) Management (Public bureaucracy)
Q: Discuss in brief the different types of entrepreneurs.

TYPES OF ENTREPRENEURS
Entrepreneurs may be classified in a number of ways.
A. ON THE BASIS OF TYPE OF BUSINESS.
Entrepreneurs are classified into different types. They are
1) Business Entrepreneur: He is an individual who discovers an idea to start a business and then builds a business to
give birth to his idea.
2) Trading Entrepreneur: He is an entrepreneur who undertakes trading activity i.e.; buying and selling manufactured
goods.
3) Industrial Entrepreneur: He is an entrepreneur who undertakes manufacturing activities.
4) Corporate Entrepreneur: He is a person who demonstrates his innovative skill in organizing and managing a
corporate undertaking.
5) Agricultural Entrepreneur: They are entrepreneurs who undertake agricultural activities such as raising and
marketing of crops, fertilizers and other inputs of agriculture. They are called agripreneurs. 6) Retail Entrepreneur:
Medical shops, fruit shops etc.
7) Service Entrepreneur: Beauty parlour, airlines, drycleaning etc.
B. ON THE BASIS OF USE OF TECHNOLOGY: Entrepreneurs are of the following types.
1) Technical Entrepreneur: They are extremely task oriented. They are of craftsman type. They develop new and
improved quality goods because of their craftmanship. They concentrate more on production than on marketing.
2) Non-Technical Entrepreneur: These entrepreneurs are not concerned with the technical aspects of the product. They
develop marketing techniques and distribution strategies to promote their business. Thus they concentrate more on
marketing aspects.
3) Professional Entrepreneur: He is an entrepreneur who starts a business unit but does not carry on the business for
long period. He sells out the running business and starts another venture.
C. ON THE BASIS OF MOTIVATION:
Entrepreneurs are of the following types:
Pure Entrepreneur: They believe in their own performance while undertaking business activities. They undertake
business ventures for their personal satisfaction, status and ego. They are guided by the motive of profit. For example,
Dhirubhai Ambani of Reliance Group.
Induced Entrepreneur: He is induced to take up an entrepreneurial activity with a view to avail some benefits from
the government. These benefits are in the form of assistance, incentives, subsidies, concessions and infrastructures.
Motivated Entrepreneur: These entrepreneurs are motivated by the desire to make use of their technical and
professional expertise and skills. They are motivated by the desire for self-fulfillment.
Spontaneous Entrepreneur: They are motivated by their desire for self-employment and to achieve or prove their
excellence in job performance. They are natural entrepreneurs.
D. ON THE BASIS OF STAGES OF DEVELOPMENT: They may be classified into;
First Generation Entrepreneur: He is one who starts an industrial unit by means of his own innovative ideas and
skills. He is essentially an innovator. He is also called new entrepreneur.
Modern Entrepreneur: He is an entrepreneur who undertakes those ventures which suit the modern marketing needs.
Classical Entrepreneur: He is one who develops a self-supporting venture for the satisfaction of customers’ needs. He
is a stereo type or traditional entrepreneur.
E. CLASSIFICATION ON THE BASIS OF ENTREPRENEURIAL ACTIVITY: They are
Classified as follows:
Novice: A novice is someone who has started his/her first entrepreneurial venture.
Serial Entrepreneur: A serial entrepreneur is someone who is devoted to one venture at a time but ultimately starts
many. He repeatedly starts businesses and grows them to a sustainable size and then sells them off.
Portfolio Entrepreneurs: A portfolio entrepreneur starts and runs a number of businesses at the same time. It may be a
strategy of spreading risk or it may be that the entrepreneur is simultaneously excited by a variety of opportunities.
F. CLASSIFICATION BY CLARENCE DANHOF: Clarence Danhof, On the basis of American agriculture, classified
entrepreneurs in the following categories: or on the basis of functional Characteristics:

Innovative Entrepreneurs: They are generally aggressive on experimentation and cleverly put attractive possibilities
into practice. An innovative entrepreneur, introduces new goods, inaugurates new methods of production, discovers
new markets and reorganizes the enterprise. Innovative entrepreneurs bring about a transformation in lifestyle and are
always interested in introducing innovations.
Adoptive or Imitative Entrepreneurs: Imitative entrepreneurs do not innovate the changes themselves, they only
imitate techniques and technology innovated by others. They copy and learn from the innovating entrepreneurs. While
innovating entrepreneurs are creative, imitative entrepreneurs are adoptive.
Fabian Entrepreneurs: These entrepreneurs are traditionally bounded. They would be cautious. They neither introduce
new changes nor adopt new methods innovated by others entrepreneurs. They are shy and lazy. They try to follow the
footsteps of their predecessors. They follow old customs, traditions, sentiments etc. They take up new projects only
when it is necessary to do so.
Drone Entrepreneurs: Drone entrepreneurs are those who refuse to adopt and use opportunities to make changes in
production. They would not change the method of production already introduced. They follow the traditional method
of production. They may even suffer losses but they are not ready to make changes in their existing production
methods.
There is another classification of entrepreneurs. According to this, entrepreneurs may be broadly classified into
commercial entrepreneurs and social entrepreneurs. G. Aruther H. Cole Classification:
Empirical: He is an entrepreneur hardly introduces anything revolutionary and follows the principle of rule of thumb.
Rational: The rational entrepreneur is well informed about the general economic condition and introduces changes
which look more revolutionary.
Cognitive: Cognitive entrepreneur is well informed, drawn upon the advice and services of experts and introduces
changes that reflect complete break from the existing scheme of enterprise. H. Classification on the basis of Ownership:
• Private: private entrepreneur is motivated by profit and it would not enter those sectors of the economy in which
prospects of monetary rewards are not very bright.
• Public: In the undeveloped countries government will take the initiative to share enterprise. State (State govt.) & Joint
Entrepreneur (Private & Public)
I. Classification based on the scale of enterprise:
• Small Scale
• Large Scale
J. Classification on the basis of Area:
• Urban
• Rural
K. Classification on the basis of Gender:
• Men
• Women
Commercial Entrepreneurs: They are those entrepreneurs who start business enterprises for their personal gain. They
undertake business ventures for the purpose of generating sales and profits. Most of the entrepreneurs belong to this category.
Social Entrepreneurs: They are those who identify, evaluate and exploit opportunities that create social values and not
personal wealth. Social values refer to the basic long standing needs of society. They focus on the disadvantaged sections of
the society. They play the role of change agents in the society. In short, social entrepreneurs are those who start ventures not
for making profits but for providing social welfare.
Q: Differentiate between entrepreneurs and managers.

Difference between entrepreneur and manager
Entrepreneur Professional Manager

Risk-taking Policy formulation

Committed Loyal
Visionary Planner
Motivator Skilled, Knowledgeable
Perception of an opportunity Setting of objectives
Interpersonal communication Formal Communication
Planner Implementer
Negotiating Organising
Trouble-shooting Motivating
Tactical Planning Strategic Planning
Innovator Administrator
Determined Confident
Making it a growing concern Controlling
He sets up a new business enterprise. He runs an already existing business.
He possesses the managerial, creative and innovative He possesses the managerial skills and business
skills to launch a business venture. knowhow to operate a business enterprise.
He acts as an innovator and creates He works in the set up created by the entrepreneur. He
a set up for managers to work in. performs day-to-day functions of the business.
He launches a new business and works for its growth He maintains the efficiency of the organisation.
and success.
He assumes the risk of success or failure of an He is paid for his services by the company. He does not
enterprise. assume any risk for business activities.
He performs entrepreneurial functions only when there He performs managerial functions on a continuous basis.
is the need to launch a new enterprise or reenergize
(change) the existing enterprise.
Entrepreneurial functions are not performed on a
continuous basis.
He is accountable to his own self. He does not have any He is accountable to his superiors and also the owners of
boss. the company.
Q: Who are Copreneurs and Intrapreneurs?

COPRENEURS
Copreneurs are entrepreneurial couples who work together as co-owners of their business.
They are creating a division of labour that is based on expertise as opposed to gender studies show that companies co-owned
by spouses represent one of the fastest growing business sectors. Marcia Sherrill with her husband William Kleinberg (USA)
runs Kleinberg Sherrills, a leather goods and accessories business. She says, “There is nothing more exciting than nurturing a
business and watching it grow with someone you love.”
INTRAPRENEURS (Corporate Entrepreneurs)
The term intrapreneur was coined in USA in the late seventies. Many senior executives of big companies in America left their
jobs and started small business of their own. They left the organisation because they did not get any opportunity to apply their
own ideas and innovative ability. These entrepreneurs become successful in their own ventures. Some of them caused a threat
to the corporations they left. This type if entrepreneurs have come to be called Intrapreneurs. They believe strongly in their
own talents. They have desire to create something of their own. They want responsibility and have a strong drive for individual
expression and more freedom in their present organisational structure. When this freedom is not forthcoming, they become less
productive or even leave the organisation to achieve self actualisation elsewhere.
Q: Differentiate between Intrapreneur & entrepreneur.

Difference between Intrapreneur and entrepreneur

INTRAPRENEUR ENTREPRENEUR
He operates within the organizational environment. He operates outside the organizational environment.
He transforms an idea into reality by focussing on He sees a business opportunity, obtains the necessary
innovation and creativity in the internal organisational inputs and starts a business operation.
environment.
He brings about change in the existing state of equilibrium He brings an organisation into existence. Once the
of organisation’s operations. business enters stagnation, he reenergizes
entrepreneurship within large organisations.
He carried out the growth of existing business. He starts a small business and grows it to a large business
house.
Q: Discuss in brief about ultrapreneurs.

ULTRAPRENEURS
Now-a-days, new products and services are conceived, create, tested, produced and marketed very quickly and with great speed.
Therefore, today’s entrepreneur needs to have a different mindset about establishing and operating a business. This mindset is
called ULTRAPRENEURING. An entrepreneur with this mind set is known as Ultrapreneur. The concept of Ultrapreneuring
is to identify a business opportunity, determine its viability and form a company. It requires assembling a super competent
management team, who then develop, produce and markets the product or service in the shortest optimum time period. They
create business and then sell out, merge or combine.
Q: What is Entrepreneurship? Discuss the characteristics of entrepreneurship.

ENTREPRENEURSHIP
The term entrepreneurship is often used synonymously with the term Entrepreneur though they are two sides of the same coin,
conceptually they are different.
Entrepreneurship is the process of identifying opportunities in the market place, arranging the resources required to pursue
these opportunities and investing the resources to exploit the opportunities for long term gains.
Entrepreneurship is a process or course of action undertaken by entrepreneur to successfully run an enterprise. It is the ability
to take calculated risks, innovative ideas, vision to grab the opportunity.
According to H. Cole, “Entrepreneurship is the purposeful activity of an individual or a group or associated individuals
undertaken to initiate, maintain and aggrandize profit by production or distribution of economic goods and services.”
According to Haggins, “Entrepreneurship is meant the function of foreseeing investment and production opportunities,
organizing an enterprise to undertake a new production process, raising capital, hiring labour, arranging the supply of
raw material, finding site, introducing new technique, discovering new resources or raw materials and selecting top
managers for day to day operations of the enterprise.”
Schumpeter defines, “Entrepreneurship is an innovative function. It is a leadership rather than an ownership.” It’s a
creative ability.
According Peter Drucker, “Entrepreneurship is neither a science nor an art. It is a practice. It has a knowledge base.
Knowledge in entrepreneurship is a means to an end. Indeed what constitutes knowledge in practice is largely defined
by the ends; that is, by the practice. Let’s look closer at these common themes so we can begin to better understand
what entrepreneurship is.
To conclude entrepreneurship is set of activities performed by an entrepreneur thus, entrepreneur precedes entrepreneurships.
Entrepreneurship refers to an action/ process of entrepreneur (person) towards establishing an enterprise. It is a creative and
innovative process and adapting response to environment. It promotes capital formation and creates wealth, and it has the thrill
of risk, change, challenge and growth.

Concept of Entrepreneurship
Risk & uncertainty Creativity The action process Leadership

oriented of entrepreneur
Invention
Decision
Making
Defining Entrepreneurship
Accepting Growth
Challenges
Common Themes in defining entrepreneurship

Creating Value Profit or Innovation Enterprise
Not-for-Profit Creation
Entrepreneur Entrepreneurship Enterprise Creation
Individual/Person An Action Process Object
Entrepreneur-A person, who creates some new events, organizes factors of production, undertakes risk & handles
economic uncertainty involved in new enterprise/ venture.
Entrepreneurship- A set of attributes that an entrepreneur possesses & practices to establish & run the enterprise, is
the ability of the individual to convert the ideas and thoughts into reality.
Enterprise: -A business or company. Entrepreneurial activity, especially when accompanied by initiative and
resourcefulness. An organization, especially a business or a difficult and important plan, especially one that will earn
money.
Cantillon’s early view to Entrepreneurial behavior

Investment Transformation Profit or Loss
Entrepreneur Entrepreneur Entrepreneur

buys farm repacks and sells food
produce at transports produce in
certain price. farm produce city at
to markets. certain price.
Conceptual model of entrepreneurship by JOHN KAO
The Person
The Organisation Entrepreneurship The Task
The Environment
In Francis A. Walker’s view, entrepreneurship is a gifted talent possessed by some individuals. It is like entrepreneurs are
born, they cannot be made.
CHARACTERISTICS OF ENTREPRENEURSHIP
Above study of entrepreneurship has shown that the process of entrepreneurship is indeed complex and also when
we say entrepreneur is what an entrepreneur does. Experts have enlisted the characteristics of entrepreneurship as follows:
1. Ability to create enterprise: Entrepreneurship is primarily an economic activity because it involves creation and
operation of an enterprise. It is basically concerned with satisfying the needs of customer with the help of production
and distribution of goods and services.
2. Organising function: An entrepreneur brings together various factors of production for an economic use. He
coordinates and controls the factors of production, efforts of the persons engaged in his enterprise.
3. Innovation: Entrepreneurship is an automatic, spontaneous and creative response to changes in the environment. It
involves innovation of something new to cause dynamic change and spectacular success in the economy, and create
conditions for growth of the economy.

4. Risk bearing capacity: Risk is an inherent and inseparable element of entrepreneurship. He assumes the uncertainty
of future. An entrepreneur guarantees rent to the landlord, wages to employees and interest to the investors in the hope
of earning more than the expenses.
5. Managerial and leadership functions: An industrial entrepreneur must have additional personality traits such as
managerial and leadership skills. Managerial and leadership qualities predominant orientation in the direction of
productivity, working relation and creative integration along with desire to make profit. Entrepreneurship demands
tactful handling of risk and uncertainties because new commodity and its acceptability are uncertain.
6. Gap filling: The gap filling between human needs and the available products and services leads to entrepreneurship.
An entrepreneur identifies the gap and takes necessary corrective measures to fin the gap, to achieve his action oriented
motive in the enterprise as an entrepreneur with the help of entrepreneurship process.
7. Mobilization of resources
8. Economic activity
9. Goal oriented activity
Q: Discuss the different traits of entrepreneur.

ENTREPRENEURIAL TRAITS
The true entrepreneur is one who is endowed with more than average capacities in the task of organizing and
coordinating the various other factors of production. Thus, a successful entrepreneur must possess the following traits:
1. Mental Ability: Mental ability consists of intelligence and creative thinking. An entrepreneur should be intelligent
and must have an analytical mind. He should have the capacity to engage in the analysis of various problems and
situations in order to deal with them. The entrepreneur should anticipate changes and must be able to study the various
situations under which decisions have to be made.
2. Clear Objectives: An entrepreneur should have a clear objective as to the exact nature of the business, nature of the
goods to be produced and ancillary activities to be undertaken. A successful entrepreneur must have the objective to
establish his product in the market, make profit and also render social service.
3. Business Secrecy: An entrepreneur must be able to guard business secrets. Leakage of business secrets to trade
competitors is a serious matter which should be carefully guarded against by an entrepreneur. Here the entrepreneur
should be able to make a proper selection of his subordinates.
4. Human Relations Ability: The most important entrepreneurial traits contributing to his success are emotional
stability, personal relations, consideration and tactfulness. In other words maintenance of public relations or human
relations most often makes the difference between success and failure of an entrepreneur. An entrepreneur must have
good relations with his customers in order to gain their continued patronage and win their confidence in his product.
He must also maintain good relations with his employees, if he is to motivate them to higher levels of efficiency. An
entrepreneur who maintains good human relations with customers, employees, suppliers, creditors and the community
in general is much more likely to succeed in his endeavors than the individual who does not practice good human
relations.
5. Effective Communication: The “gift of the gab” is a must for a successful entrepreneur. Good communication also
means that the entrepreneur has the ability to put his point across effectively and with clarity. Communication must
be to the point, crisp and convincing. Communication ability is the secret of the success of most entrepreneurs.
6. Technical Knowledge: The entrepreneurs are dealing with situations where sophisticated technology is involved.
The entrepreneur must have a reasonable level of technical knowledge. This is one trait which entrepreneurs can
acquire if they try hard enough.
7. Decision making: Running a business requires taking a number of decisions. Hence, an entrepreneur should have the
capacity to analyse the various aspects of the business for arriving at a decision.
8. Energy: As constant attention is required for the successful running of the business, an entrepreneur must have
sufficient energy to work hard for long periods.

9. Risk-bearing: ‘No-risk, no business’ or ‘no-risk, no gains’. There is an element of risk in every business, hence an
entrepreneur should be prepared to accept failure in its proper perspective and view failure as a challenge and
opportunity.
Apart from these basic traits, Robert D. Hisrich has identified a few more entrepreneurial traits. In his opinion the
entrepreneur must have adequate commitment, motivation and skill to start and build a business. It is his responsibility to
determine if the management team has the complementary skills necessary to succeed. Hisrich feels that the entrepreneur must
possess the following traits in addition to those mentioned in the preceding paragraphs:
a) Motivation: An entrepreneur must built an efficient team, keep it motivated and provide an environment for individual
growth and career development.
b) Self-confidence: Entrepreneurs must have the mental capacity to face any situation. They should also have the ability
to inspire others. They must have the confidence in themselves and the determination to achieve their goals.
c) Long-term involvement: Entrepreneurs must be committed to long-term projects which require continuous and
consistent involvement.
d) High energy level: Success of an entrepreneur demands the ability to work long hours for sustained periods of time.
e) Trouble-shooter: The entrepreneur must possess the trait of the proverbial “trouble-shooter”. He must have the ability
to identify where a problem is and suggest on the spot solutions.
f) Initiative: The entrepreneur must have initiative, accepting personal responsibility for actions and above all make
good use of resources. It is this trait which gives the entrepreneur the courage to risk and learn from failures.
g) Goal-setter: An entrepreneur must be able to set challenging, but realistic goals. These personal traits can go a long
way in the all-round progress of a nation.
These personal traits make an entrepreneur a successful person. However, it must be stated that no entrepreneur
possesses all these strengths. No entrepreneur is born with all these traits. It is possible for him to acquire these traits if the
environment is suitable for this purpose.
Q: Differentiate between entrepreneur & entrepreneurship.

Difference between Entrepreneur and Entrepreneurship
ENTREPRENEUR ENTREPRENEURHIP
Refer to person Refers to a process
Visualiser Vision
Creatore Creation
Organiser Organisation
Innovator Innovation
Technician Technology
Initiator Initiative
Decision-maker Decision
Planner Planning
Leader Leadership
Motivator Motivation
Programmer Action
Risk-taker Risk-taking
Communicator Communication
Administrator Administration
Q: Discuss the role of entrepreneur in economic growth.

ROLE OF ENTREPRENEUR IN ECONOMIC GROWTH

It is very often said that “India is a rich country inhabited by the poor”. India is endowed with plenty of natural
resources and good climate. But the country has not made much economic progress as it should have been. Natural resources
themselves will not produce economic development. There must be people with vision, initiative and drive to make use of the
natural resources. In India, what we require is “entrepreneurship” in an individual to productively integrate resources and
enhance economic growth.
In fact, entrepreneurship is the dynamic need of a developing nation and sustains the process of economic development
in the following ways:
1. Employment Generation: Growing unemployment particularly educated unemployment is an acute problem of the
nation. When government creates, say a hundred jobs in various departments, 100 persons get employed and the
vacancies are filled for thirty years or so, till these people retire and the vacancies re-emerge. If a hundred persons
become entrepreneurs they not only create a hundred jobs for themselves but also provide employment to many more.
As the time passes these enterprises grow providing direct and indirect employment to many more. Thus,
entrepreneurship is the best way to fight the evil of unemployment.
2. National Income: National Income consists of goods and services produced in the country and those imported. The
goods and services produced are for consumption within the country as well as to meet the demand of exports. The
domestic demand increases with ever increasing population and standard of living. The export demand also increases
to meet the needs of growing import due to various reasons. An increasing number of entrepreneurs are required to
meet this increasing demand for goods and services. Thus, entrepreneurship increases the national income.
3. Dispersal of Economic Power: The world affairs have been dominated by power. There have always been two types
of power i.e., muscle power and economic power. In the modem age, the muscle power has lost its relevance and the
world is ruled by the economic power Economic power is the natural outcome of industrial and business activity.
Industrial development normally can lead to concentration of economic power in few hands.
4. Balanced Regional Development: The growth of industry and business leads to a large number of public benefits
like road transport, health, education, entertainment etc. When the industries are concentrated in selected cities, the
development gets limited to these cities. A rapid development of entrepreneurship ensures a balanced regional
development. When the new entrepreneurs grow at a faster pace, in view of the increasing competition in and around
the cities, they are forced to set up their enterprises in the smaller towns away from big cities. This helps in the
development of the backward regions.
5. Harnessing Locally Available Resources and Entrepreneurship: India is considered to be very rich in natural
resources. A few large scale industries started by entrepreneurs from outside the state in economically backward areas
may help as models of pioneering efforts, but ultimately the real strength of industrialization in backward areas
depends upon the involvement of local entrepreneurship in such activities. Increased activities of local entrepreneurs
will also result in making use of abundantly available local resources.
6. Reducing Unrest and Social Tension Amongst youth: Many problems associated with youth unrest and social
tensions are rightly considered to be due to youth not being engaged in productive work. In the changing environment
where we are faced with the problem of recession in wage employment opportunities, alternative to wage career is the
only viable option. The country is required to divert the youth with latent entrepreneurial traits from wage career to
self-employment career. Such alternate path through entrepreneurship could help the country in defusing social tension
and unrest amongst youth.
7. Innovations in Enterprises: Business enterprises need to be innovative for their survival and better performance. It
is believed that smaller firms have relatively higher necessity and capability to innovate. Entrepreneurship
development programmes are aimed at accelerating the pace of small firms’ growth in India. Increased number of
small firms is expected to result in more innovations and make the Indian industry compete in international market.
8. Improvement in Living Standards: Entrepreneurs set up industries which remove scarcity of essential commodities
and introduce new products. Production of goods on mass scale and manufacture of handicrafts, etc., in the small scale
sector help to improve the standard of life of a common man. These offer goods at lower costs and increase variety in
consumption.
9. Economic Independence: Entrepreneurship is essential for national self-reliance.
Q: What are the causes of success and failure of entrepreneur?

CAUSES OF SUCCESS AND FAILURE OF ENTREPRENEUR

An entrepreneur may sometime become successful and sometime becomes failure. There are some causes of such success and
failure. They are noted below:
• Selection of business: It is an important aspect. That means an entrepreneur has to determine what type business he
is going to start. Form various points of view the feasibility of the business should be tested.
• Proper planning: Proper planning me s also important. For planning, planning premises like political, economic,
social premised should be considered first. The steps of planning should be followed properly.
• Initial capital: if the initial capitals are not an optimal level the organization would fall. So whether the enterprise is
big or small the initial capital should be sufficient enough.
• Determination of market demand: Through research the demand in the market should be identified. Both for long
term and short term it should be considered.
• Marketing of product: If the promotion policy, channel of destitution, transportation is not good the enterprise would
fall.
• Education and experience: One of the important tasks of the entrepreneurs is to select right person for the right post
because the success of an enterprise depends on the right selection of employees.
• Joint initiative: One may have much money and another may have more merit. Through joint initiative it can be
balanced. But sometime for joint initiative misunderstanding arise, or sometimes corruption occur which may result
in falloff enterprise.
• Employment: Recruitment and appointment should be properly done. Those who have specialized skill should be
appointed to that specialized job. Inefficient, corrupted employees may be responsible for fall of business.
• Location of business: Site selection is an important factor. While starting a new business, an entrepreneur should
think about the location of the business. In this case, many factors should be considered such as availability of raw
materials, proper communication system, availability of labor, marketing facilities and so on.
• Qualities of management: The management must have a minimum quality to success otherwise it would fall.
• These are the common causes for which one enterprise may become successful and another may fall.
Q: Discuss the barriers of entrepreneurship.

Or
Discuss the environment, social & personal barriers of entrepreneurship.
BARRIERS TO ENTREPRENEURSHIP
Entrepreneurial development is very slow in under developed and developing countries. This is due to the presence of several
factors. Gunnar Myrdal pointed out that Asian societies lack entrepreneurship not because they lack money or raw material but
because of their attitudes. These barriers to entrepreneurship are classified into three as follows:
A. ENVIRONMENTAL BARRIERS
Following are the important environmental barriers to entrepreneurship:
Non-Availability of Raw Material: - Non-availability of raw materials especially during peak season is one of the
obstacles inhibiting entrepreneurship. This leads to competition for raw material.
Lack of Skilled Labour: This is the most important resource in any organization.
Unfortunately, desired manpower may not be available in an organization. This is either due to the lack of skilled labour
or due to lack of committed or loyal employees in the organization.
Lack of Good Machinery: - Good machines are required for the production of goods, because of rapid technological
developments, machines become obsolete very soon. Small entrepreneurs find it difficult to get large amount of cash
for installing modern machinery.
Lack of Infrastructure: - Lack of infrastructure facilities is a major barrier to the growth of entrepreneurship particularly
in under developed and developing economies.
Lack of Fund: - There are various methods by which an entrepreneur arranges for funds, e.g., own savings, borrowings
from friends and relatives, banks and other financial institutions. Many people do not enter into entrepreneurial
activities because of lack of funds.

Other Environmental Barriers: - Lack of business education, Lack of motivation from government, corruption in
administration, high cost of production etc. are the other environmental barriers that inhibit the growth of
entrepreneurship in underdeveloped countries.
B. PERSONAL BARRIERS
Personal barrier are those barriers that are caused by emotional blocks of an individual. Some of the personal barriers may be
outlined as below:
Unwillingness to Invest Money: - Even though people have money, still they do not come in entrepreneurship. They
are not willing to take the risk of investing money in business.
Lack of Confidence: - Many people thing that they lack what it takes to become an entrepreneur. They feel that they
could not master all the skills. Thus most people are reluctant to become entrepreneurs.
Lack of Motivation: - When an individual starts a new venture, he is filled with enthusiasm and drive to achieve
success. But when he faces the challenges of real business or bears loss, or his ideas don’t work, he loses interest or
motivation.
Lack of Patience: - The desire to achieve success in the first attempt or to become rich very soon is the prime
motivating factor of modern youth. When such dreams do not come true , they lose interest. This gradually drives to
fail in business.
Inability to Dream: - Entrepreneurs, who are short on vision or become satisfied with what they achieve, sometimes
lose interest in further expansion/growth of business.
C. SOCIAL BARRIERS
The social attitude inhibits many people even from thinking of starting a business. The important social barriers are as follows.
Low Status: - The society things that entrepreneurs are the people who exploit the society. Thus the attitude of the
society towards entrepreneurs is not positive.
Custom and Tradition of People: - Most people want a real job. Even parents who are entrepreneurs wouldn’t like
their children to be entrepreneurs. Thus lack of support from society and family hinder the growth of entrepreneurs.
Karl H. Vasper has identified following barriers:

Lack of viable concept
Lack of market knowledge
Lack of technical skills
Lack of seed capital
Lack of business know-how
Competency- Lack of motivation
Social stigma
Legal constraints and regulations
Monopoly and protectionism
Inhibitions due to patent
Factors affecting Entrepreneurship or barrier to development of Entrepreneurship or problems/ Impediments

Factors/Barriers
Economic Factors Non-Economic Factors Govt. action/political Factors
Capital Incentives, Subsidies,

Social Factors Psychological Factors government policies etc.
Labour
Raw materials Social-Cultural norms and Lack of sustained

values, Family motivation, difficulty and
Market
background, Education, ambiguity, inability to
Financial Stability, caste, dream, lack of clean
religion, Social mobility perception
Q: Who are known as women entrepreneurship? Discuss the features and types of women entrepreneur.
WOMEN ENTREPRENEUR
Women entrepreneur means a person who is a female and who has started a business of her own. Women Entrepreneurs may
be defined as the women or a group of women who initiate, organize and operate a business enterprise.
Government of India has defined women entrepreneurs as an enterprise owned and controlled by women having a minimum
financial interest of 51% of the capital and giving at least 51% of employment generated in the enterprise to women.
Features of Women Entrepreneurs

• Imagination -Openness to feedback and learning from experience
• Attribute to work Hard -Confronting uncertainty
• Persistence -Stress takers
• Ability and desire to take risk -Time orientation
• Flexibility -Business communication skill
• Analytical ability of mind -Leadership
• Sense of efficacy -Determination
Types of Women Entrepreneur
• Affluent Entrepreneurs: daughters, daughter-in-law and wives of rich business families.
• Pull factors: women take up some assignments or enterprise as a challenge.
• Push factor: women take up some business activity to overcome financial difficulties,
• Rural entrepreneurs: women in rural sector try to start something suiting to their resources and knowledge.
Examples are dairy products, pickles, fruit juice, papads etc. Areas of Business Opportunities for Women
Entrepreneurs
Cosmetics and Beauty Parlors -Handicrafts
Garments and Textile Items -3P’s (Pickles, Powder [spices] and Papad)
Education and Training -Consultancy Services

Interior Decoration -Medicare (Medical and Paramedical)

Nursery and Creches -Engineering Goods
Q: List out the problems faced by women entrepreneur.

Or
What are the measures taken for development of women entrepreneur in India.
Or
Discuss the reason for slow growth of women entrepreneur.
Or
What are the assistance provided to women entrepreneur?
PROBLEMS FACED BY WOMEN ENTREPRENEURS
Cultural Barriers: As mentioned, the traditional Indian society does not encourage women empowerment. The concept
of gender equity is not uniformly known nor accepted. Woman entrepreneurship, above all, can be perceived as a
questioning of male predominance. This barrier, though being informal, has a strong effect on women determination
to undertake entrepreneurship activities. Besides, this discrepancy in the treatment of men and women is also reflected
in other sectors where women have to face prejudices and employment reluctances. There are many businesses, where
we don’t find any woman entrepreneur. Thus we need to create better education and understanding so that cultural
barriers can break.
Educational Barriers: Although women are generally more present than men in the Higher Education system, their
curriculum is not adapted to the new requirements of the labour market. The specific educational programs preferred
by women, such as BA, MA, are not well linked to the existing demand of the market, and thus disadvantage female
professionals. To maintain a well-developed human skills base, that is a major asset for the future development of the
country; a stronger link between women’s higher education preferences and labour market demands needs to be
established. Now women are getting better education. But in rural areas, the situation is still very pathetic. There is an
urgent need to promote higher education among women. The Gujarat Government introduced free higher education
for women, and this had a positive effect. Similar initiative needs to be taken up in other states as well.
Economical Barrier: Women are mostly present in the less well-paid sectors of the economy. Their concentration in
the public “non-productive” sectors of Health, Education and Culture has seen their wages fall further below the
national average over the past 10 years. Despite efforts deployed towards economic empowerment of women, the
majority of the active female population continues to be confined in the micro and small-scale enterprises and the
informal sector (like cross-border trade, subcontracting work at home or street trading). Clearly, women’s
entrepreneurial potential remains untapped in transition countries, especially when compared to global trends. Like,
for example in most countries of Western Europe, where the number of women entrepreneurs has rapidly increased
during the last ten years, contributing to GDP growth and the creation of new jobs.
Financial Barriers: The integration of women into the formal sector is still constrained by limited access to credit and
property. This barrier, effective for many entrepreneur men and women, is even more sensitive for women. Apart from
the gender prejudice limiting their access to traditional sources of funding, women are more accurately disadvantaged
by their lack of; technical knowledge in the redaction of business plans, the absence of efficient high level networking
(for string-pulling and guarantees). Besides, even if women are seen as more rational in their choices, they are
restrained by their lack of ambitions and self-confidence.
Marketing Problems Marketing is another area, which very often proves to be the graveyard of many small-scale
women entrepreneurs. It has been found that the small-scale entrepreneurs, owing to their high achievement
orientation, generally set higher goals in terms of marketing of their products or services but later on find them difficult
to achieve because of heavy competition, incurring huge advertisement cost and many other extraneous factors.
Occupational Mobility Problems Occupational mobility, such as shifting from one product line to another is an area
where women entrepreneurs are generally found to be more at a disadvantageous position than their male counterparts.
Government Assistance Problems The women entrepreneurs were exasperated by the indifferent attitude of
government officials of all the small industry related departments like taxation, labour, power, etc. i.e. when the
authorities come to know that the unit is being run by a woman, they discourage allotting sales tax number and giving

electricity connection. Above all they have ignorance about various procedures, laws, and complicated bureaucratic
set-up while dealing with entrepreneurial support organizations.
Financial Problems Typically women entrepreneurs of small scale enterprises start well but some where down the line
in their day-to-day operations they miss the route to success. In more than half such cases the reasons identified can
be attributed to financial mismanagement. Financial support as well as financial viability, therefore, is the most
important considerations of any business proposition.
Production Problems Production in a manufacturing enterprise involves coordination of a number of activities. While
some of these activities are in the control of entrepreneur there are others over which she has little control.
Improper coordination or unintended delay in execution of any activity is going to cause production problems in the
industry.
In other way we can summarize the problems of a women entrepreneur as follows:

• Lack of confidence
• Legal, statutory and procedural formalities
• Problems of product marketing
• Decision making and problem solving
• Inadequate vocational and technical training
• Operational problems
• Lack of management inputs
• Updation on technological changes
REASONS FOR THE SLOW GROWTH OF WOMEN ENTREPRENEURSHIP
Unfavourable family background.
Lack of business education.
Dual role of women.
Lack of aptitudes and training.
Absence of individualistic spirit.
Lack of freedom to choose a job according to ability, influence of sex, custom etc.
Inadequate infrastructure facilities.
Shortage of capital and technical knowhow.
Lack of adequate transport and communication facilities.
Shortage of power.
Lack of security.
Absence of ideal market conditions.
Corruption in administration.
HOW TO DEVELOP WOMEN ENTREPRENEURS?
Right efforts from all areas are required in the development of women entrepreneurs and their greater participation in the
entrepreneurial activities. Following efforts can be taken into account for effective development of women entrepreneurs.
Consider women as specific target group for all developmental programmes.
Better educational facilities and schemes should be extended to women folk from government part.
Adequate training programme on management skills to be provided to women community. Encourage
women’s participation in decision-making.
Vocational training to be extended to women community that enables them to understand the production process and
production management.
Skill development to be done in women’s polytechnics and industrial training institutes. Skills are put to work in
training-cum-production workshops.
Training on professional competence and leadership skill to be extended to women entrepreneurs.
Training and counselling on a large scale of existing women entrepreneurs to remove psychological causes like lack of
self-confidence and fear of failure.

Counselling through the aid of committed NGOs, psychologists, managerial experts and technical personnel should be
provided to existing and emerging women entrepreneurs.
Continuous monitoring and improvement of training programmes.
Activities in which women are trained should focus on their marketability and profitability.
Making provision of marketing and sales assistance from government part.
To encourage more passive women entrepreneurs the Women training programme should be organised that teach to
recognize her own psychological needs and express them.
State finance corporations and financing institutions should permit by statute to extend purely trade related finance to
women entrepreneurs.
Women’s development corporations have to gain access to open-ended financing.
The financial institutions should provide more working capital assistance both for small scale venture and large scale
ventures.
Making provision of micro credit system and enterprise credit system to the women entrepreneurs at local level.
Repeated gender sensitisation programmes should be held to train financiers to treat women with dignity and respect as
persons in their own right.
Infrastructure, in the form of industrial plots and sheds, to set up industries by women is to be provided by state run
agencies.
Industrial estates could also provide marketing outlets for the display and sale of products made by women.
A Women Entrepreneur’s Guidance Cell to be set up to handle the various problems of women entrepreneurs all over
the state.
District Industries Centres and Single Window Agencies should make use of assisting women in their trade and business
guidance.
Programmes for encouraging entrepreneurship among women are to be extended at local level.
Training in entrepreneurial attitudes should start at the high school level through well-designed courses, which build
confidence through behavioral games.
More governmental schemes to motivate women entrepreneurs to engage in small scale and large-scale business
ventures.
Involvement of Non-Governmental Organisations in women entrepreneurial training programmes and counselling.
MEASURES TAKEN FOR THE DEVELOPMENT OF WOMENENTREPRENEURSHIP IN

INDIA
Women empowerment should be one of the primary goals of a society. Women should be given equality, right of
decisionmaking and entitlements in terms of dignity. They should attain economic independence. The most important step to
achieve women empowerment is to create awareness among women themselves. Development of women can be achieved
through health, education and economic independence. Realizing the importance of women entrepreneurs, Govt. of India has
taken a number of measures to assist them. Some of the important measures are outlined as follows:
1) TRYSEM: Training of Rural Youth for Self Employment was launched on 15th August 1979 which is still continuing.
The objective of TRYSEM is to provide technical skills to rural youth between 18 and 35 years of age from families below the
poverty line to enable them to take up self-employment in agriculture and allied activities, industries, services and business
activities. This is a sub scheme of IRDP. Training given through ITIs, Polytechnics, Krishi Vigyan Kendra, Nehru Yuva
Kendras etc have helped many rural women set up their own micro entreprises with IRDP assistance.
2) BANKS: Banks particularly commercial banks have formulated several schemes to benefit women entrepreneurs.
These includes Rural Entrepreneurship Development Programmes and other Training programmes, promotion of rural non-
farm enterprise, women ventures etc.
3) NABARD: NABARD as an apex institution guides and assists commercial banks in paying special attention to women
beneficiaries while financing. It has also been providing refinance to commercial banks so as to help the latter institutions to
supplement their resources which could be deployed for the purpose of financing women beneficiaries.
4) INDUSTRIAL POLICY: The new Industrial policy of Government has specially highlighted the need for conducting
special entrepreneurship programme for women.

5) INSTITUTIONS AND VOLUNTARY ASSOCIATION: Several voluntary agencies like FICCI Ladies
Organization (FLO), National Alliance of Young Entrepreneurs (NAYE) and others assist women entrepreneurs.
NAYE has been a leading institution engaged in the promotion and development of entrepreneurship among women. It
convened a conference of women entrepreneurs in November 1975. It assists the women entrepreneurs in: (a) Getting better
access to capital, infrastructure and markets.
(b) Identifying investment opportunities.
(c) Developing managerial and productive capabilities.
(d) Attending to problems by taking up individual cases with appropriate authorities.
(e) Sponsoring participation in trade fairs, exhibitions, special conference etc.
6) NATIONAL POLICY FOR THE EMPOWERMENT OF WOMEN, 2001: As to the commitments made by India
during the Fourth World Conference on women held in Beijing during September, 1995, the Department of women and children
has drafted a national policy for the empowerment of women. This is meant to enhance the status of women in all walks of life
at par with men.
ASSISTANCE TO WOMEN ENTREPRENEURS

Entrepreneurship does not differentiate the sex. A number of facilities and assistance are offered to the entrepreneurs. However,
certain additional incentives or facilities offered to women entrepreneurs are discussed as follows.
SMALL INDUSTRIAL DEVELOPMENT ORGANISATION (SIDO): SIDO through a network of SISIs conduct
the EDPs exclusively for women entrepreneurs. The aim is to develop entrepreneurial traits and qualities among
women and enable them to identify entrepreneurial opportunities etc.
NATIONAL SMALL INDUSTRIES CORPORATION (NSIC): The H.P. scheme of NSIC provides preferential
treatment to women entrepreneurs. It also conducts Entrepreneurs and Enterprise Building programmes for women.
INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI):The schemes of IDBI for women entrepreneurs are
summarized as follows: PROMOTER’S CONTRIBUTION: The IDBI set up the Mahila Udyan Nidhi (MUN) and
Mahila Vikas Nidhi (MVN) schemes to help women entrepreneurs. IDBI conduct programmes of training and
extension services through designated approved agencies and association with other development agencies like EDII,
TCOs, KVIC etc.
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI): SIDBI has special schemes for financial
assistance to women entrepreneurs. It provides training and extension services. It gives financial assistance at
concessional terms in setting up tiny and small units.
COMMERCIAL BANKS: The “Sthree Shakthi Package Scheme” of SBI provides a package of assistance to women
entrepreneurs. The consultancy wings of SBI give guidance on project identification and project viability. The program
of assistance such as repair and servicing, photo copying, dry cleaning, retail trade business enterprises, poultry
farming, tailoring etc. The Bank Of India has introduced a scheme known as ‘Priyadarshini Yojana’ to help women
entrepreneurs.
KUDUMBASREE UNITS: With the objectives of poverty eradication and women empowerment Kudumbasree has
been introduced in Kerala. The poor women are organized into community- based organisations. They start and operate
micro enterprise. They earn income through self-employment.
Q: Write short notes on Social Entrepreneur.

SOCIAL ENTREPRENEURSHIP
Social entrepreneurship is all about recognizing the social problems and achieving a social change by employing entrepreneurial
principles, processes and operations.
SOCIAL ENTREPRENEUR
It means a Person or group of individual who founds/or leads an organization or initiative engaged in social entrepreneurship.
They are also called sometimes, public entrepreneurs, civic entrepreneurs or social innovators.
Activities of Social Entrepreneur
According to Arthur C. Brooks following activities are performed by social entrepreneur:

Adoption of a mission to create and sustain social value (beyond personal Value).
Recognition and relentless pursuit of opportunities for social value.
Engagement in continuous innovation and learning.
Action beyond the limited resource at hand.
Heightened sense of accountability.
Sustainability issues in Social Entrepreneurs
Funding (can be for profit as well as non-profit)
Communicating value objectives (more than commercial value)
Strategy and long-term focus
Remaining true to the mission
Q: Who are Rural Entrepreneurs? Discuss their characteristics and problems.

RURAL ENTREPRENEURSHIP
It is the creation of a new organization that introduces a new product, serves or creates a new market, or utilizes a new
technology in a rural environment.
Rural entrepreneurship is entrepreneurship that emerges in the local rural area in the field of rural industry, agriculture and
handicrafts.
Rural industrial environment:

Characteristics
Industrial environment in rural areas is characterised by following situations:
1. Abundant natural resources including land, water minerals and solar power as also wind power.
2. Land is easily available at relatively much lower prices.
3. Availability of labour particularly of semi-skilled and unskilled type is easy and at lower wage rates.
4. Rural environment is free of pollution.
5. Tax burden in rural areas is low, which increases competitive strength of rural industry.
6. Government extends encouragement of rural industrialisation by free or low price supply of land, power, water and tax
concessions.
Problems
As against these positive and favourable factors rural industrial environment suffers from following difficulties.
• Technological limits - In rural areas latest modern technology of production is not easily available.
• Limits on capital mobilisation - Banks and financial institutions are reluctant to provide financial capital for rural
industrial effort, which has very faint possibilities of financial success.
• Shortage of skilled labour - skilled labour is difficult to obtain in rural areas because of lack of training and
educational facilities in the villages. In case such skilled labour is imported from urban areas, it becomes necessary to
pay higher wages. Sometimes, such imported skilled labour creates management problems.
• Lack of infrastructural facilities - In many rural areas, infrastructural facilities like power supply, all year roads, fast
communication are less developed. This naturally creates disincentives for rural entrepreneurship.
• Absence of industrial motivation - Rural population is orthodox, illiterate or semi-literate and tradition bound and
believes in destiny. This creates adverse climate for rural industrialisation.
• Lack of information - Rural population because of illiteracy, ignorance and indifference is not aware of various
government facilities, schemes, policies and financial assistance etc.
• Tradition bound culture - Rural people are tradition bound, orthodox and very reluctant to change. Their cultural
values and conventions are not favorable for industrial enterprise.
Entrepreneurs from rural industry:

Apart from agriculture traditional rural industry cottage industry and handicrafts constitute the other aspect of industrial
enterprise in rural areas. For rural development it is of great importance to promote and develop non-agricultural
industrialisation at local levels in rural areas which will gradually eradicate rural poverty and unemployment. Nonagricultural
rural industry includes following things:
1. Khadi industry
2. Processing of food grains and pulses
3. Processing of oil seeds for oil 4. Rural leather industry,
5. Matches industry.
6. Jaggery and Khandsary
7. Pam products
8. Non-edible oil and soaps
9. Hand-Made paper
10. Apiary
11. Production of lime.
12. Pottery, smithy and carpentry.
13. Forest based medicinal plants.
14. Fruits processing and preservation.
15. Rope making and bamboo industry.
16. Lac
17. Art industry.
18. Coconut industry.
19. Service industry (hair cutting, washing, plumbing, painting repairs etc.)
Most of these industrial activities are classified into seven groups:

1. Mineral based industries.
2. Forest based industries.
3. Agro-based industries
4. Polymer and chemical based industries. 5. Engineering and non-traditional
6. Textile industry.
7. Service industry.
Importance /benefits of Rural Entrepreneurship

It is believed that development of rural industry will yield following benefits:
1. Local raw material will be used.
2. Local technology will be exploited.
3. Rural skills, crops will be protected.
4. Rural non-agricultural employment will increase.
5. Their will be greater exports of handicrafts.
It is, thus, clear that increasing rural industrial enterprises will improve the standard of living of the rural people.
Problems in development of rural entrepreneurship:
Development of rural entrepreneurship faces a number of problems: These problems are listed below:
Inadequate credit availability due to indifferent attitudes of modern financial institutions.
Obsolete technology – Rural techniques of production are quite primitive and have become obsolete, production based
on this is of no quality and cannot compete in modern markets because of high cost per unit.
The quality of rural production is substandard, Rural entrepreneurs are not aware of the importance of quality
production.

In rural areas infrastructural facilities are either absent or very poor. This relates to roads, railways, power, water,
transport and communication as also education and training.
Ignorance- Rural population is burdened with ignorance, lack of educational facilities and lack of training in industrial
skills.
Adverse social attitude- In rural areas people give more respect to salary earning employees than self-employed farmers
and local craftsmen.
Problem of markets- Even though there may be some industrial activity in rural areas. They find it very difficult to sell
their output because of lack of effective market locally and absence of safe, cheap and quick transport facilities.
Q: Discuss different strategies for development of rural entrepreneur. Developmental

strategies for rural entrepreneurship:
While developing strategy for industrial enterprise in rural areas, it is necessary to take into consideration the totality of rural
reality in terms of resources physical and human as also environmental. It is believed that following approaches can be used
for formulating strategy for rural industrial enterprise:
Identification of rural entrepreneurship – In this regard, it is necessary to scout for rural entrepreneurs, rural industrial
opportunities through industrial camps and publicity campaign.
Credit supply- It becomes necessary for banking and non-banking agencies to provide cheaper credit to local enterprise.
Technological facilities – It is necessary to develop ways and means to make available modern technology to rural
entrepreneurs.
Facilities for higher education- It is also necessary to create higher educational facilities including facilities for
technical education and vocational training in rural areas.
Co-ordination between small and large industries. local industrial enterprise should be encouraged to establish links
with large scale urban industrial enterprise for proper marketing through contracts, technical collaboration etc. adopt
positive and proactive policies for rural industrialisation.
Trade organizations- There should be trade organizations at local levels which create liaison with regional and national
level trade organizations for getting regular feed-back in mutual manner. Such organizations should collect and make
available information regarding opportunities for rural industrialisation.
Management co-operation- For rural industrialisation it is necessary to evolve methods of co-operation and
coordination between agencies like district industries centers, entrepreneurship development centers, universities and
trade organizations. Facilities for management education must be made available which can ensure survival in a
competitive market system.
UNIT-II
ENTREPRENEURIAL FINANCE, ASSISTANCE & ENTREPRENEURIAL DEVELOPMENT
AGENCIES

An entrepreneur requires a continuous flow of funds not only for setting up of his/ her business, but also for successful operation
as well as regular up gradation/ modernization of the industrial unit. To meet this requirement, the Government (both at the
Central and State level) has been undertaking several steps like setting up of banks and financial institutions; formulating
various policies and schemes, etc. All such measures are specifically focused towards the promotion and development of small
and medium enterprises. The government of India has been taking active steps to promote entrepreneurship in various industry
& service sectors. It has declared several policy measures and is implementing schemes and programmes to enhance the global
competitiveness of small enterprises across the country.
• Cheaper and Faster start-up . Getting more out of the single market
• Better Legislation & Regulation . Taxation and financial matter
• Availability of skills . Strengthening the technological capacity
• Improving online access . Conducting EDP’s
ROLE OF GOVERNMENT IN PROMOTING ENTREPRENEURSHIP

Training
Marketing Assistance
Promotional Schemes
Concession on Excise study
Credit Facility to MSME
Policies and schemes for promotion of MSME Implemented by State Government
Q: What do you understand by MSME? Discuss its role.

MICRO, SMALL & MEDIUM ENTERPRISES (MSME)
Definitions of Micro, Small & Medium Enterprises In accordance with the provision of Micro, Small & Medium Enterprises
Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:
1. Manufacturing Enterprises-he enterprises engaged in the manufacture or production of goods pertaining to any
industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant
and machinery in the process of value addition to the final product having a distinct name or character or use. The
Manufacturing Enterprise is defined in terms of investment in Plant & Machinery.
2. Service Enterprises:-The enterprises engaged in providing or rendering of services and are defined in terms of
investment in equipment.
Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not exceed five crore rupees
Medium Enterprises More than five crore rupees but does not exceed ten crore rupees
Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed two crore rupees
Medium Enterprises More than two crore rupees but does not exceed five core rupees
Role of MSME
Employment Generation
Production
Export Contribution

Innovation & Development

Utilising resource optimally
Developing entrepreneurial capacity
Increase GDP
Feeder to large Industries
Increase standard of Living
Equitable distribution of Income
Social advantage
MSME Policy in India

Reservation Policy
Purchase and price preference policy
Licensing policy
Trade policy
FDI approval policy
Labour policy
Credit policy
AGENCIES FOR POLICY FORMULATION & IMPLEMENTATION

Role of Agencies
Financial Assistance
Technical Assistance
Promotional Activities
Marketing Assistance
Q: Write short notes on:

a) DIC
b) SISI
c) EDI/EDII
d) NEISBUD
e) NEDB
DISTRICT INDUSTRIES CENTRE (DIC):
The 'District Industries Centre' (DICs) programme was started by the central government in May 1978 with the objective of
providing a focal point for promoting small, tiny, cottage and village industries in a particular area and to make available to
them all necessary services and facilities at one place. The finances for setting up DICs in a state are contributed equally by the
particular state government and the central government. To facilitate the process of small enterprise development, DICs have
been entrusted with most of the administrative and financial powers. For purpose of allotment of land, work sheds, raw materials
etc., DICs functions under the 'Directorate of Industries'. Each DIC is headed by a General Manager who is assisted by four
functional managers and three project managers to look after the following activities:
Activities of District Industries Centre (DIC):

I. Identification of Entrepreneurs
II. Selection of projects
III. Economic Investigation
IV. Plant and Machinery (Purchase of Fixed Assets) V. Clearances from various departments

VI. Research, education and training

VII. Raw materials (Assistance to raw material supplies)
VIII. Credit facilities
IX. Marketing assistance X. Cottage industries
XI. Training programme
Objectives of District Industries Centre (DIC):

The important objectives of DICs are as follow:
Accelerate the overall efforts for industrialisation of the district.
Rural industrialisation and development of rural industries and handicrafts.
Attainment of economic equality in various regions of the district.
Providing the benefit of the government schemes to the new entrepreneurs.
Centralisation of procedures required to start a new industrial unit and minimisation- of the efforts and time required to
obtain various permissions, licenses, registrations, subsidies etc.
Functions of District Industries Centre (DIC):

Acts as the focal point of the industrialisation of the district.
Prepares the industrial profile of the district with respect to: Statistics and information about existing industrial units in
the district in the large, medium, small as well as co-operative sectors. Opportunity guidance to entrepreneurs.
Compilation of information about local sources of raw materials and their availability.
Manpower assessment with respect to skilled, semi-skilled workers.
Assessment of availability of infrastructure facilities like quality testing, research and development, transport, prototype
development, warehouse etc.
Organises entrepreneurship development training programs.
Provides information about various government schemes, subsidies, grants and assistance available from the other
corporations set up for promotion of industries.
Gives SSI registration.
Prepares techno-economic feasibility report.
Advices the entrepreneurs on investments.
Acts as a link between the entrepreneurs and the lead bank of the district.
Implements government sponsored schemes for educated unemployed people like PMRY scheme, Jawahar Rojgar
Yojana, etc.
Helps entrepreneurs in obtaining licenses from the Electricity Board, Water Supply Board, No Objection Certificates
etc.
Assist the entrepreneur to procure imported machinery and raw materials. Organises
marketing outlets in liaison with other government agencies.
SMALL INDUSTRIES SERVICE INSTITUTE (SISI)

At the heart of all agencies dealing with development of small industry is small industries development organization, SIDO. It
was originally known as central small industries organization (CSIO). Attached to the ministry, SIDO administers small
industries service institute (SISI’s).
The small industries service institutes (SISI’s) are set-up one in each state to provide consultancy and training to small and
prospective entrepreneurs. The activities of SISs are co-ordinate by the industrial management training division of the DC,
SSI office (New Delhi). In all there are 28 SISI’s and 30 Branch SISI’s set up in state capitals and other places all over the
country.
SISI has wide spectrum of technological, management and administrative tasks to perform.
Role of SISI

Technical information
Workshop
Technical training
Export promotion
Development of the market
Exhibition
Modernization
Functions/ Activities of SISI

To assist existing and prospective entrepreneurs through technical and managerial counseling such as help in selecting
the appropriate machinery and equipment, adoption of recognized standards of testing, quality performance etc;
Conducting EDPs all over the country;
To advise the Central and State governments on policy matters relating to small industry development;
To assist in testing of raw materials and products of SSIs, their inspection and quality control; To
provide market information to the SISI’s;
To recommend SSI’s for financial assistance from financial institutions;
To enlist entrepreneurs for partition in Government stores purchase programme;
Conduct economic and technical surveys and prepare techno-economic feasible reports for selected areas and
industries.
Identify the potential for ancillary development through sub-contract exchanges;
Organize seminars, Workshops and Industries Clinics for the benefit of entrepreneurs.
The Small Industries Service Institutes have been generally organizing the following types of EDPs on specialized courses for
different target groups like energy conservation, pollution control, Technology up-gradation, Quality improvement, Material
handling, Management technique etc. as mentioned earlier..
Apart from this, exposure is given information regarding market survey, product identification and selection, technologies
involved, management of small enterprises, particularly in matters relating to financial management, marketing, packaging and
exports.
The participants also interact with successful small scale entrepreneurs as a part of their experience sharing Information of
quality; possibilities of diversification and expansion are also given.
The entrepreneurs are helped to prepare Project Reports based on their own observations and studies for obtaining financial
assistance as may be required. Such courses have benefitted many entrepreneurs to set up units of their own choice.
ENTREPRENEURSHIP DEVELOPMENT INSTITUTE OF INDIA (EDII/EDI)

EDII has been focusing its attention on developing programmes for entrepreneurship development and innovative training
technique for trainers. The institute has developed EDP or women and carried out experiments in rural development in villages.
It conducts entrepreneurs' meet, training programmes for trainers and gives professional assistance to various institutions for
their developmental activities.
The Entrepreneurship Development Institution of India (EDII) was set up in March 1983 at Ahemedabad jointly by financial
institutions and the Gujarat Government. The central Government also established in the same year the National Institute for
Entrepreneurship and Small Business Development with the objective of co-coordinating the activities related to
entrepreneurship and small business development.
Mission Statement
To become a catalyst in facilitating emergence of competent first generation entrepreneurs and transition of existing SMEs into
growth-oriented enterprises through entrepreneurship education, training, research & institution building
EDI has been spearheading entrepreneurship movement throughout the nation with a belief that entrepreneurs need not
necessarily be born, but can be developed through well-conceived and well-directed activities. In consonance with this belief,
EDI aims at:

• Creating a multiplier effect on opportunities for self-employment,

• Augmenting the supply of competent entrepreneurs through training,
• Augmenting the supply of entrepreneur trainer-motivators,
• Participating in institution building efforts,
• Inculcating the spirit of 'Entrepreneurship' in youth,
• Promoting micro enterprises at rural level,
• Developing and disseminating new knowledge and insights in entrepreneurial theory and practice through research,
• Facilitating corporate excellence through creating intrapreneurs (entrepreneurial managers),
• Improving managerial capabilities of small scale industries,
• Sensitising the support system to facilitate potential and existing entrepreneurs establish and manage their enterprises,
• Collaborating with similar organisations in India and other developing countries to accomplish the above objectives.
Objective of EDII
Creating multiplier effect on opportunities for self employment
Providing training for supply competent entrepreneur
Participating in institution building efforts
Inculcating the spirit of entrepreneurship in youth
Developing and disseminating new knowledge
Role of EDII in Developing Entrepreneurship
• Develops programmes for entrepreneurial training and development
• Develops innovative training techniques for trainers
• Focused attention on women entrepreneurs with first such EDP in 1988.
• Famous for organizing camps on entrepreneurship
The basic EDPs undertaken by EDI comprise of the following steps:
1. Selecting potential entrepreneur.
2. Achievement motivation training (AMT)
3. Product selection and project report training.
4. Business management training
5. Practical training and work experience
6. Post training and follow up
7. It undertakes model training program and sets an example for the status to follow.
THE NATIONAL INSTIT UTE FOR ENTREPRENEURSHIP AND SMALL BUSINESS

DEVELOPMENT
(NIESBUD)
NIESBUD is an apex bodies for coordinating and overseeing the activities of various institutions and agencies engaged in
entrepreneurship development particularly in the area of small-scale industry. It was establish in 1983 by Ministry of Industry,
Govt. of India. This institute is registered as a society under Govt. of India Societies Act (xxi of 1860) started functioning from
6th July, 1983.
OBJECTIVES
The main objectives of the institute are:
To accelerate the process of entrepreneurship development throughout the country and among all segments of the
Society.
To help institutions/agencies in carrying out activities relating to entrepreneurship development.
To evolve standardised process of selection, training support and sustenance to potential entrepreneurs enabling them
to set up and run their enterprises successfully.

To provide information support to trainers, promoters and entrepreneurs by organising documentation and research work
relevant to entrepreneurship development.
To provide functional forums for integration and exchange of experiences helpful for policy formulation and
modification at various levels.
FUNCTIONS
The main functions of the Institute are as follows:
Evolving effective training, strategy and methodology.
Formulating scientific selection procedure.
Standardising model syllabus for training for various groups.
Developing training aids, manuals and other tools.
Supporting other agencies engaged in entrepreneurship development,
Conducting such programmes for promoters, trainers and entrepreneurs which are commonly not undertaken by other
agencies.
Organising all those activities that help develop entrepreneurial culture in the country
Publishing literature for furtherance of entrepreneurship and small business development. The institute is also the
secretariat of the National Entrepreneurship Development Board, the apex body which determines the policy for
entrepreneurship development in the country. It performs the task of processing recommendation made by the board.
THE NATIONAL ENTREPRENEURSHIP DEVELOPMENT BOARD (NEDB)

It is the apex body for determining policies in respect of entrepreneurship development in the country. The NIESBUD is acting
as the secretariat for NEDB by performing the task of processing the recommendations made by the board. It devises &
recommends to the government, schemes for promotion of entrepreneurship for encouraging self-employment in SSI and small
business.
Salient Features:
The scheme covers the following activities:-
To identify and remove entry barriers for potential entrepreneurs (first generation and new entrepreneurs) including
study on entrepreneurship development.
To focus on existing entrepreneurs in micro, tiny and small sector and identify and remove constraints to survivals,
growth and continuously improve performance.
To facilitate the consolidation, growth and diversification of existing entrepreneurial venture in all possible ways.
To support skill upgradation and renewal of learning processes among practicing entrepreneurs and managers of micro,
tiny, small and medium enterprises.
To sensitise to support agencies in the area of entrepreneurship about the current requirement of growth.
To act as catalyst to institutionalise entrepreneurship development by supporting and strengthening state level
institutions for entrepreneurship development as most entrepreneurship related activities take place at the grass root
level and removing various constraints to their effective functioning.
Setting up of incubators by entrepreneurship development institutions and other organisations devoted to the promotion
of entrepreneurship development.
Q: What are the financial support systems to the entrepreneurs? Discuss in brief.
FINANCIAL SUPPORT SYSTEM
Financial institution is an institution that provides financial services for its clients or members. Any institution that collects
money and puts into assets such as stocks, bonds, bank deposits, or loans is considered a financial institution.
FORMS OF FINANCIAL SUPPORT
A. According to its Application
a. Fixed Capital

b. Working Capital
B. According to its Requirement or say duration
a. Long-term Capital
b. Medium-Term Capital
c. Short-Term Capital
C. According to its Nature
a. Equity or ownership Capital
b. Debt or Borrowed Capital
Need of Financial Support System

• Capital Investment
• Lengthy NPD life cycle
• Cash Flow Challenges
SOURCES OF FINANCIAL SUPPORT

A. Internal Sources
a. Retained Profit
b. Controlling Working Capital
c. Sales of Assets
d. Owners Personal saving
e. Reducing stocks
f. Trade credit
B. External Support
a. Short-Term Financial Support
i. Indigenous (private money-lenders) Bankers
ii. Installment credit
iii. Advances
iv. Accrued Expenses ( Expense incurred but not paid)& Deferred Income ( advance before supplying
goods)
v. Account Payable/Creditors
vi. Trade credit
vii. Bills discounting
viii. Commercial bank
b. Medium Term Financial Support
i. Special financial institution
ii. Commercial bank
iii. Public deposits
iv. Investment companies
v. Hire Purchase (First hiring for few period & then purchasing)
vi. Lease financing
vii. Loans from government
c. Long term Financial support
i. Equity shares
ii. Preference shares
iii. Debentures

iv. Retained earnings

v. Loans from financial institution
vi. Commercial banks
vii. Venture capital (Capital provided to early stage) viii. Institutional financing
Q: Discuss some major financial institution that are providing funds to entrepreneurs.
Or
Write a short notes on:
a) IDBI
b) IFCI
c) ICICI
d) IRBI
MAJOR FINANCIAL INSTITUTIONS
COMMERCIAL BANKS
Commercial banks are those banks which perform all kinds of banking function such as accepting deposits, advancing loans,
credit creation, and agency functions. They are also called joint stock banks because they are organized in the same manner as
joint stock companies. They usually advance short-term loans to customers. Now, they have started giving medium-term and
long-term loans also.
Indian Companies Act, 1949, has defined the bank, “The accepting for the purpose of lending or investment of deposits of
money from the public repayable on demand or otherwise and withdraw by cheque, draft, order or otherwise.”
Characteristics of Commercial Banks

1. Mobilization of Savings
2. Facilitate Commerce and Trade
3. Balance Regional Development
4. Provision of finance to backward communities and neglected segment of society
5. Development of agriculture and other priority sectors in the Economy
Role of Commercial Banks 1.

Acceptance of Deposits
a. Fixed deposits Account
b. Current Account
c. Saving Bank Account
2. Advancing of Loans
a. Making ordinary Loan
b. Cash credit
c. Overdraft
3. Promote the use of Cheques
4. Agency function of the Bank
a. Transfer of Funds
b. Collecting customers Funds
c. Purchase and Sale of Shares and Securities for its Customer
d. Collecting Dividends on the shares of the Customers
e. Payment of premium
f. Income-tax consultant

5. Purchase and sale of Foreign Exchange

6. Financing internal and foreign trade
7. Creation of credit
8. Fulfillment of Socio-economic objectives
Assistance by Commercial Banks

1. Loans
2. Cash credit
3. Overdraft
4. Purchasing and discounting of bills
5. Special scheme of Assistance
6. Credit Guarantee Scheme
Development Institution: IDBI (Industrial Development bank of India), ICICI (Industrial credit & Investment Corporation of
India), SIDBI (Small Industries Development bank of India), IFCI (Industrial Finance Corporation of India).
Specialised Financial Institution: EXIM (Export & Import Bank of India), HUDCO (Housing & Urban Development
Corporation of India).
Investment Institution: LIC (Life Insurance Corporation of India), GIC (General Insurance Corporation), UTI (Unit trust of
India).
SFC’s (State Financial Corporation), SIDC (Small Industries Development Corporation).
INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)

This bank was established under the Industrial development bank of India Act, 1964, as a wholly owned subsidiary of the
reserve bank of India. The main objective of establishing IDBI was to setup an apex institution to coordinate the activities of
other financial institutions and to act as a reservoir on which the other financial institutions can draw. It provides direct financial
assistance to industrial units also to bridge the gap between supply and demand of medium and long term finance.
Role/Functions of IDBI
1. To co-ordinate the activities of other institutions providing term finance to industry and to act as an apex
institution.
2. To provide refinance to financial institutions granting medium and long-term loans to industry.
3. To provide refinance to scheduled banks or co-operative banks.
4. To provide refinance for export credits granted by banks and financial institutions.
5. To provide technical and administrative assistance for promotion, management or growth of industry.
6. To undertake market surveys and techno-economic studies for the development of industry. Schemes offered
by IDBI
1. Direct Assistance
a. Project finance scheme
b. Textile modernization fund scheme
c. Technology up gradation scheme
d. Venture capital fund scheme
e. Technical development fund scheme
2. Indirect Assistance
a. Re-finance scheme
b. Bill Re-discount scheme
c. Seed capital scheme
d. Operating support scheme

INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI)

It was established in 1948 under the IFC Act, 1948. The main objectives of the corporation have been to provide medium and
long-term credit to industrial concerns in India.
Functions of IFCI
Financial Assistance
Promotional Activities
INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI)

It was set up in January, 1955. The ownership of the corporation was entirely in private hands but certain safeguards were
contemplated against the acquisition of control by vested interests.
ICICI provides funds of various kinds. The primary purpose for which funds are made available by the corporation is the
purchase of capital assets such as land, building and machinery.
Objectives of ICICI
1. Assisting in the creation, expansion and modernization of such enterprises.
2. Encouraging and promoting the participation of private capital, both internal and external
3. Encouraging and promoting private ownership.
4. Expansion of investment market.
5. Providing finance in the form of long or medium-term loans.
6. Making fund available for re-investment.
INDUSTRIAL RECONSTRUCTION BANK OF INDIA (IRBI)

The government of India set up IRCI in April 1971, as a Joint-Stock Company, to provide reconstruction and rehabilitation
assistance mainly to sick units. The IFCI, ICICI, LIC and public sector banks also contributed to its share capital. The IRCI
was reconstituted and renamed as IRBI in 1985 in terms of IRBI Act.
Functions of IRBI
1. IRBI acts as principal credit and reconstruction agency for revival, modernization, rehabilitation, expansion and
diversification of industrial units.
2. It grants loans and advances, underwrites stocks, shares, and bond, guarantees loans, performance and deferred
payments.
3. The IRBI gives consultancy services, merchant banking and equipment leasing.
4. It also gives assistance for capital expenditure, addition of balancing equipment, correcting imbalances in working
capital of sick, weak and closed units and those facing imminent closure.
5. It also provides infrastructural facilities, raw materials, consultancy, managerial, hire-purchase credit facilities to
public, private cooperative and joint sectors.
UNIT- III
DEVELOPING ENTREPRENEURIAL MIND-SET
Q: What is Idea Generation? What are the different sources of New Ideas?
Or
Discuss different method of generating new ideas.
Idea generation is the creative process or procedure that a company uses in order to figure out solutions to any number of
difficult challenges. It involves coming up with many ideas in a group discussion, selecting the best idea or ideas, working to
create a plan to implement the idea, and then actually taking that idea and putting it into practice. The idea can be tangible,
something you can touch or see, or intangible, something symbolic or cultural.
Sources for new ideas

Managers can try to search actively for new ideas by looking for inspiration from the following sources.
External sources: customers; lead-users (user solutions); patents/inventions; competitors; suppliers; acquisitions; trade fairs
and conventions; published information; trade magazines; outside consultants; channel members; universities; government;
law/regulations.
Internal sources: internal R&D; employees; engineering/IT; shelved ideas; complaints systems; customer service; sales force.
Methods of Generating New Ideas for Entrepreneurs

Even with a wide variety of sources available, coming up with an idea as the basis for a new venture can still be a difficult
problem. The entrepreneur can use several methods to help generate and test new ideas including focus groups, brainstorming
and problem inventory analysis.
The following are some of the key methods to help generate end test new ideas:
1. Focus Groups: these are the groups of individuals providing information in a structural format. A moderator leads a
group of people through an open, in-depth discussion rather than simply asking questions to solicit participant response. Such
groups form comments in open-end in-depth discussions for a new product area that can result in market success. In addition
to generating new ideas, the focus group is an excellent source for initially screening ideas and concept.
2. Brainstorming: it is a group method for obtaining new ideas and solutions. It is based on the fact that people can be
stimulated to greater creativity by meeting with others and participating in organized group experiences. The characteristics of
this method are keeping criticism away; free wheeling of idea, high quantity of ideas, combinations and improvements of ideas.
Such type of session should be fun with no scope for domination and inhibition. Brainstorming has a greater probability of
success when the effort focuses on specific product or market area.
3. Problem inventory analysis: it is a method for obtaining new ideas and solutions by focusing on problems. This
analysis uses individuals in a manner that is analogous to focus groups to generate new product areas. However, instead of
generating new ideas, the consumers are provided with list of problems and then asked to have discussion over it and it
ultimately results in an entirely new product idea.
The entrepreneur is not limited by only the three methods presented in this article. There are other creative problem solving
methods and techniques that are also available.
Q: Write short notes on motivation of entrepreneurs.

Or
Discuss the different motivational theories.
ENTREPRENEURIAL MOTIVATION
CONCEPT AND NEED
Entrepreneur is human being who has his dignity, self-respect, values, sentiments, aspirations, and dreams apart from economic
status. Indeed, economic betterment and social up-liftment motivates a person to distinguish from others. Entrepreneurship is
largely the product of motivation.
A few important and obvious questions arise: What prompts people to embark on such a difficult journey? What motivates
people to go into business? This lesson intends to answer these questions/issues by discussing entrepreneurial motivation in its
various aspects viz. meaning and theories of motivation, motivating factors and development of achievement motivation.
The term 'motivation' has its origin in the Latin word “movere” which means to “move”.
According to Dubin, motivation could be defined as “the complex of forces starting and keeping a person at work in an
organisation. Motivation is something that moves the person to action, and continues him in the course of action already
initiated”. The role of motivation is to develop and intensify the desire in every member of the organisation to work effectively
and efficiency in his position.
In the words of Dalton E. McFarland, “Motivation is the way in which urges, desires, aspirations, striving or needs direct,
control or explain the behaviour of human being”. Motivation has very close relationship with the behaviour. It explains how
and why the human behaviour is caused.
Entrepreneurial motivation may be defined as a set of motives such as high need to achieve, moderate need for power and
low affiliation motive which induce people to set up and run their own enterprises. Apart from these, entrepreneurs have other
behavioural dimensions such as tolerance for ambiguity, problem solving, creativity, etc.

THEORIES OF MOTIVATION
The number of theories that have been propounded to explain human’s behaviour can judge the importance of motivation to
human life and work. They explain human motivation through human needs and human nature. Prominent among these
theories, which are particularly relevant to entrepreneurship, are Maslow's Need Hierarchy Theory and McClelland's Acquired
Needs Theory.
Theory Given BY Based on
Maslow’s Need Hierarchy Abraham Maslow, father of motivation. Physiological Needs
Theory Theory proposed in 1943 in paper A Safety Needs,
Theory of Human Motivation" Social Needs,
in Psychological Review and fully Esteem Needs,
expressed in 1954 in his book Self Actualisation Need
Motivation and personality
Harzberg’s Two Factor Theory Psychologist Frederick Herzberg, 1968 Hygiene Factors
Motivational factor
Alderfer’s ERG theory Psychologist Clayton Alderfer, first Existence
published in a 1969 article titled "An Relatedness
Empirical Test of a New Theory of Growth
Human
Need."
Mc Clleland’s Theory David McClelland built on this Need for Achievement
work in Need for Power
his 1961 book, "The Achieving Need for Affiliation
Societ y
Vroom’s Expectancy Theory Proposed by Victor Vroom of the Yale Valence- most preferred target
School of Management, in 1964 Expectancy- effort which take to 1st level
Instrumentality- which take to final level
Adam’s Equity Theory developed in 1969 by J. Stacy Adams, a My Effort & outcome = Other’s
Effort workplace and behavioral psychologist, & Outcome
Porter lawler Model Lyman W. Porter and Edward E Lawler Effort-Performance- Outcome-
in 1968 Satisfaction
1. Maslow's Need Hierarchy Theory: Prof. A.H. Maslow developed a theoretical framework for understanding human
motivation which has been widely acclaimed. According to him, a person's effectiveness is a function of matching his
opportunity with the appropriate position of hierarchy of needs. Maslow proposed that human needs can be arranged in a
particular order from the lower to the higher. The need hierarchy is as follows:
5 Self-fulfillment needs
4 Ego needs
3 Social needs
2 Safety needs
1 Physiological need
Basic Physiological Needs: The physiological needs relate to the survival and maintenance of human life. These needs
include such things as food, clothing, air, water and other necessaries of life which are biological in nature. These needs are
primary needs.

Safety and Security Needs: After satisfying the physiological needs, people want the assurance of maintaining a given
economic level. They want job security, personal bodily security, security of source of income, provision for old age,
insurance against risks, etc.
Social Needs: Man is a social being. He is, therefore, interested in conversation, sociability, exchange of feelings and
grievances, companionship, recognition, belongingness, etc.
Esteem and Status Needs: These needs embrace such things as self-confidence, independence, achievement, competence,
knowledge and success. These needs boost the ego of individual. They are also known as egoistic needs. They are concerned
with prestige and status of the individual.
Self-Fulfillment Needs: The final step under the need priority model is the need for self-fulfillment or the need to fulfill what
a person considers to be his mission in life. It involves realizing one's potentialities for continued self-development and for
being creative in the broadest sense of the word. He wants to do something which is challenging and since this challenge
gives him enough dash and initiative to work, it is beneficial to him in particular and to the society in general. The sense of
achievement gives him psychological satisfaction.
2. McClelland's Acquired Needs Theory: Each person tends to develop certain motivational drives as a result of his
cognitive pattern and the environment in which he lives. David McClelland gave a model of motivation which is based on three
types of needs, namely, achievement, power and affiliation. They are as follows: Need for achievement (n-Ach): A drive to
excel, advance and grow;
Need for power (n-Pow): A drive to influencing others and situations; and
Need for affiliation (n-Aff): A drive for friendly and close interpersonal relationships.
McClelland also suggests that these three needs may simultaneously be acting on an individual. But, in case of an entrepreneur,
the high need for achievement is found dominating one. In his view, the people with high need for achievement are characterised
by the following:
They set moderate, realistic and attainable goals for them.
Prefer to situations in which they can find solutions for solving personal responsibility.
They need concrete feedback on how well they are doing.
They have need for achievement for attaining personal accomplishment. They
look for challenging tasks.
MOTIVES FOR ENTREPRENEUR

Several researchers have carried out research studies to identify the factors that motivate people to start business enterprises.
The findings of some of the studies are as follows:
In a pioneering study, R.A. Sharma classified all the factors motivating the entrepreneurs into two types as follows:
(i) Internal factors: (ii) External factors:

(a) Educational background (a) Assistance from Government
(b) Occupational experience (b) Financial assistance from institutions
(c) Desire to do something pioneering and innovative (c) Availability of technology and/or raw
materials
(d) Desire to be free and independent (d) Encouragement from big business units
(e) Family background (e) Heavy demand for product
(f) Others.
After making different studies on technical and new entrepreneurship, Arnold C. Copper concluded that there are three main
groups of factors which influence an entrepreneur. These are (i) the characteristics of the entrepreneur including many aspects
of his background (family, education, age, occupational experience, etc.) which make him more or less inclined towards
entrepreneurship. These might be called “internal factors” (ii) the organisation for which he has been working earlier which
might be termed as the incubator organisation (iii) a complex of 'external influences' including the availability of venture
capital, collective attitudes and perceptions leading to entrepreneurship, and the accessibility to suppliers, personnel and
markets.

Another study by Murthy, Sekhar and Rao on entrepreneurial motivation classified the factors behind entrepreneurial growth
into three categories as follows:
1. Entrepreneurial ambitions
1. To make money
2. To continue family business
3. To secure self-employment/independent living
4. To fulfill desire of self/wife/parents
5. To gain social prestige
6. Other ambitions- making of a decent living, self-employment of children, desire to do something creative, provide
employment to others.
2. Compelling reasons
1. Unemployment
2. Dissatisfaction with the job so far held or occupation pursued
3. Make use of idle funds
4. Make use of technical/professional skills.
5. Others – maintenance of large families, revival of sick unit started by father, etc.
3. Facilitating factors
1. Success stories of entrepreneurs
2. Previous association (experience in the same or other line of activity)
3. Previous employment in the same or other line of activity
4. Property inherited/self acquired/wife's
5. Advice or influence (encouragement) of family members/relatives/ friends.
6. Others– association as apprentices and sleeping partners.
The study was conducted on 334 entrepreneurs in two coastal towns of Anakapalli and Gudivada of Andhra Pradesh. The
ambitions of continuing family business and securing self-employment emerged as the most significant motivating factors.
Making money and gaining social prestige were found to be insignificant.
McClelland and his associates contend that need for achievement is a prerequisite for becoming an entrepreneur. People with
a high level of achievement motivation are likely to behave in an entrepreneurial way. But it is not essential that such people
will actually become entrepreneurs. Such persons are likely to be attached towards business only if business enjoys a high
prestige in society. Thus, the relationship between achievement need and occupational preference depends on the prestige of
the occupation concerned.
According to McClelland, they are unusually creative, having high propensity of risk-taking capacity and a strong need for a
achievement.
Now, it is crystal clear from the foregoing analysis that the majority of entrepreneurs are motivated to enter industry mainly
because of four factors:
First, they possessed technical knowledge or manufacturing experience in the same or related line. Second,
there was heavy demand for the particular product.
Third, the Governmental and institutional assistance available facilitated individuals to enter industry.
Fourth, they have enterprising attitude, what McClelland designates' an achievement motive', to do something
independent in life.
Q: Discuss the meaning of entrepreneurial competencies. Or

Discuss the different types of entrepreneurial competencies.

ENTREPRENEURIAL COMPETENCIES
Meaning & definition
Competency was first popularized by Boyatzis (1982), who performed a comprehensive study of over 2000 managers
and he identified and assessed over a hundred potential competencies. He defined competency as, “A capacity that
exists in a person that leads to behavior that meets the job demands within the parameters of organizational
environment, and that, in turn brings about desired results.”
Competency is composed of knowledge, skills, abilities and other characteristics which underlie effective or successful
job performance; these competency attributes are observable and measurable; and these attributes distinguish between
superior and other performers.
It is defined as the sum of experiences, knowledge, skills and attitude which we acquire during our life time for effective
performance in a task or job. Competency is the concept of knowledge, skills and attitude of the person.
Based on the work of Boyatzis (1982), entrepreneurial competencies are defined as underlying characteristics
possessed by a person which result in new venture creation survival, and/or growth (Bird, 1995).
These characteristics include generic and specific knowledge, motives, traits, self-images, social roles, and skills that
may or may not be known to the person (Boyatzis, 1982). Some of these competencies are innate while others are
acquired in the process of learning and training and development.
In short, the competencies required by an entrepreneur for starting a business venture and carrying it on successfully
are known as entrepreneurial competencies.
.TYPES OF ENTREPRENEURIAL COMPETENCIES
It may be classified into two types:
A) PERSONAL ENTREPRENEURIAL COMPETENCIES: These are required to perform the tasks effectively and
efficiently. This includes the following:
• Initiative: It is an inner urge in an individual to do or initiate something.
• Ability to See and Act on Opportunities: Entrepreneurs look for opportunities and take action on such opportunities.
• Persistence: It means the capacity or skill to take repeated and different actions to overcome obstacles.
• Information seeking: A successful entrepreneur always keeps his eyes and ear open. He should accept new ideas
which can help him in realizing his goals. He is ready to consult experts for getting their expert advice.
• Concern for High Quality of Work: Entrepreneurial persons act to do things that meet or beat existing standards of
excellence.
• Commitment to Work: Successful entrepreneurs are prepared to make all sacrifices for completing the commitments
they have made.
• Commitment to Efficiency: Entrepreneurial persons have to look and find ways for or find ways to do things faster
or with fewer resources or at a lower cost. They should try new methods aimed at making work easier, simpler, better
and economical.
• Systematic Planning: Entrepreneurial persons should be able to develop and use the logical step by step plans to reach
goals.
• Problem solving: Entrepreneurial persons are supposed to possess the skill of identifying new and potentially unique
ideas to reach goals. They should generate new ideas or innovative solutions to solve problems.
• Assertiveness: They assert own competence, reliability or other personal or company’s qualities. They also assert
strong confidence in own company’s products or services.
• Persuasion: Entrepreneurs should have the ability to successfully pursue others to perform the activities effectively
and efficiently.
• Use of Influence Strategies: Entrepreneurs should have the competence of using a variety of strategies to influence
others. Such entrepreneurs can develop business contacts and use influential people to accomplish his/her own
objectives.
B) VENTURE INITIATION AND SUCCESS COMPETENCIES:

An entrepreneur must also possess the competencies required for launching the enterprise and for its survival and growth.
These competencies may be further divided into two categories of competencies:

1. ENTERPRISE LAUNCHES COMPETENCIES: These include the following:

• Competency to understand the nature of business.
• Competency to comply with Government regulations.
• Competency to deal with the business.
• Competency to finance the business.
• Competency to locate the business.
• Competency to plan the marketing strategy.
• Competency to choose the type of ownership.
• Competency to obtain technical assistance.
• Competency to develop a business plan.
• Competency to determine the potential as an entrepreneur.
2. ENTERPRISE MANAGEMENT COMPETENCIES: These include the following:
• Competency to protect the business.
• Competency to manage customer credit and collection.
• Competency to manage the finances.
• Competency to manage the business records.
• Competency to manage sales efforts.
• Competency to promote the products and services of the business.
• Competency to manage human resources.
• Competency to manage the business.
Man et al (2001) found following components for analyzing entrepreneurial competencies: Strategy, commitment, conceptual,
opportunity, relationship, learning, personal. These components can be understood as:
• Strategy Competency: It relates to entrepreneurs ability to develop a vision in mind for their business Develop vision
and strategy, plan ahead, set goals and standards, sell ideas.
• Commitment Competency: It demonstrates strong motivation to compete, drive to see venture through to fruition,
capacity to make an impact and dedication.
• Conceptual Competency : The entrepreneur requires analytical competency when faced with addressing complex
situations .It demonstrates the possession of cognitive ability and decision-making skill, ability to weigh risks, think
analytically, be innovative, be creative, show reasoning, capacity to reduce risks.
• Opportunity Competency: It relates to the ability to recognize opportunity, ability to capture opportunity, ability to
identify customers need.
• Relationship Competency: It possesses and uses good interpersonal and communication skills, ability to influence
others and gain support. A key success factor for an entrepreneur has been found to be his or her capabilities to work
with others such as employees, business partners, family, friends, customers and so forth.
• Organizing Competency: It is ability to direct, lead, delegate, motivate, plan and schedule work, develop program,
prepare budget. Entrepreneurs should have the ability to lead, coordinate, control, monitor, and organize internal and
external resources of the business such as finance and human resources.
• Learning competency: Learning competency is the ability of directing and utilizing their skills to be more successful
in recognizing and adapting to the changing roles of entrepreneurs.
• Personal Competency: Personal competency refers to important personal qualities and abilities of the competencies
that help in building up personal strength and enhance an individual effectiveness in performing certain challenging
tasks such as managing one’s own business. In the personal competency, entrepreneur should identify strengths and
weaknesses and match them with opportunities and threats. Additionally, this study also includes the components
identified by Chandler and Jansen who identified three competencies, i.e. Technical Competency, Social
Responsibility and Ethical Competency.
• Technical competency: Technical competency includes the ability to use and adopt technical skills including the
techniques and tools handling which are relevant to the business .This involve possessing knowledge of instruments
and the functioning of tools, machines or search procedure as well as mastery of tasks or content of work.

• Social Responsibility Competency: Social Responsibility Competency has been referred to as “the positive activities
a company under takes in the society in which it operates” including responsibility towards customers, employee and
the Public.
• Familism Competency: Familism Competency was defined as “affection and concern for family that is dominant and
drives action and daily life.
• Ethical Competency: Ethical competence in business means high Ethical Awareness and the ability to understand the
ethical problems and power to communicate and argue at the organization level and having confidence to run the
business effectively.
Q: What are the components of entrepreneurial competencies?

COMPONENTS OF ENTREPRENEURIAL COMPETENCIES
1. ATTITUDINAL COMPETENCY ATTRIBUTES
An attitude is a hypothetical construct that represents an individual’s degree of like or dislike for something. Attitudes are
generally positive or negative views of a person, place, thing, or event. Attitudes are judgments of an individual. `Attitudinal
Competency` is the ability to select, maintain or adapt one’s best attitudes for the present. Behaviour in a given situation can
be viewed as a function of the individual’s attitude towards the situation.
• Self Confidence: Self-confidence is an essential trait in an entrepreneur because he is regularly called upon to perform
tasks and make decisions that require great amounts of faith in himself. He needs to have a strong but realistic belief
in himself and his ability to achieve the predetermined goals.
• Self Esteem: Self-esteem of an entrepreneur represents his ability to develop healthy confidence and respect for
himself. He feels confident for being capable for life, able and worth or to feel right to achieve happiness. An
entrepreneur respects himself and defends his own interest and needs.
• Dealing with Failures: Entrepreneurship is about getting up whenever the business fails, and learning from that
failure. An entrepreneur believes that failure is part of the entrepreneurial process, and often without it, success would
not be possible. Further he is able to make mistakes, learn from them, and quickly recovers and changes his direction
and moves into the future.
• Tolerance for Ambiguity: In the entrepreneurial process tolerance for ambiguity refers to the ability of an
entrepreneur to perceive ambiguous situation as desirable, challenging, and interesting and neither denies nor distorts
their complexity of incongruity.
• Performance: A successful entrepreneur perceives that his performance is different from others. He believes that it is
his high performance which ultimately differentiates him from low performers.
• Concern for high quality: An entrepreneur perceives concern for high quality of his products and services to meet or
surpass existing standards of excellence in a faster, better and cheaply. By doing this an entrepreneur remains ahead
of others in the market place.
• Locus of Control (LOC): Locus of control is the system of belief of an individual who perceives the outcome of an
event as being either within or beyond his personal control. Entrepreneurs tend to believe in their own ability to control
the outcomes to their efforts by influencing the existing environment, rather than leave everything to luck. They
strongly believe that they can shape their own destiny.
2. BEHAVIORAL COMPETENCY ATTRIBUTES
Behavioral competency of an entrepreneur refers to the underlying characteristics having casual relationship with effective or
superior performances in the process of carrying on his business activities. The following attributes are tested in order to
assesses and find out the nature of behavioural competency among the respondents.
• Initiatives: Initiative of an entrepreneur refers to his behavior with a preference for taking action on different
responsibilities or6 assignments. It further denotes that he is able and willing to do more than what is required or
expected of him in a job.
• Sees and Acting on Opportunities: Sees and acting on opportunities refers to the unique entrepreneurial behavior
which helps him to be alert to information and ability to process it in order to identify and recognize the potential
business opportunities even before his competitor.
• Persistence: Persistence of an entrepreneur denotes the ability which keeps him constantly motivated even when he
is confronted by obstacles that seem insurmountable and willing to keep trying when things go wrong, and accepts

that, ultimately, it is he who has to make his dream come true. Entrepreneurs seldom give up when things are not going
well.
• Assertiveness: Assertiveness of an entrepreneur is about his behavioral aspect that affirms his rights or point of view
without either aggressively threatening the rights of others (assuming a position of dominance) or submissively
permitting others to ignore. Successful entrepreneurs for the most part are assertive.
• Need for achievement: Successful entrepreneurs are characterized by a need for achievement which motivates them
to take up responsibilities for finding solutions to problems. Further this quality helps them to set challenging goals
for themselves, assume personal responsibility for the goal accomplishment and they are highly persistent in the pursuit
of these goals.
• Need for autonomy: The need for autonomy of an entrepreneur is characterized by a drive to control and influence
others, a need to win arguments, a need to persuade and prevail. Research studies had asserted that strong need for
autonomy/ power/ control/ influence usually will let the enterprises in to trouble because doctorial, adversarial, and
domineering styles make it very difficult to attract and keep people who thrived on achievement, responsibility and
results. Therefore successful entrepreneurs have high need for achievement while low need for power.
• Risk-taking: Entrepreneurs are essentially persons who take decisions under uncertainty and therefore they are willing
to bear risk. Entrepreneurs are usually moderate risk takers. However, successful entrepreneurs will always prefer to
take on those risks that they can manage.
• Drive and energy: Entrepreneurs are driven to succeed and expand their business. They are always on the move, full
of energy and highly motivated. They are driven to succeed and have an abundance of self -motivation.
• Innovation: Innovation refers to the behavior pattern of an individual who has interest and desire to seek changes in
techniques and ready to introduce such changes into his operations when practical and feasible.
• Creativity: An entrepreneur is said to be creative when he is able to identify a gap in the market and think up a product
or service to meet that gap. Creativity of an entrepreneur also implies the ability to do old thinks in a new way or able
to give new solutions.
3. MANAGERIAL COMPETENCY ATTRIBUTES
Managerial Competency of an entrepreneur is the ability to direct his staff and define the expected outcomes clearly and finally
to get the things done at the best and cheapest ways and means. Managerial competency is an approach to managing others and
to ensure optimal use of available resources in meeting organizational objectives on a sustained basis.
• Information seeking: An entrepreneur has an urge to look for the required information in order to make an informed
decision, for example, selecting, starting and successfully managing the desired business. This calls for the
entrepreneurs to personally seek and obtain information that is required to enable him make decisions and improve
knowledge on his/her business.
• Systematic planning: An entrepreneur is expected to have systematic planning which will help him to prepare an
action plan for every area of operation in order to achieve the pre-determined goals.
• Problem solving: Problem solving refers to the application of appropriate knowledge and skills in order to solve a
problem arising while carrying on the business. It requires an entrepreneur to have creative thinking in order to
understand the various techniques involved in resolving different problematic issues of a business.
• Persuasion: Persuasion in entrepreneurship refers to the ability of entrepreneurs to link, convince and influence other
individuals, groups, agencies, creditors, debtors, customers and even competitors in order to create a contact and
maintain good rapport.
• Goal setting & Perseverance: Goal setting refers to the ability of an entrepreneur to set clear and specific goals and
objectives. Successful entrepreneurs are able to achieve great things only by overcoming the obstacles that stand in
their way. Therefore they need to have perseverance which implies commitment, hard work, and patience, endurance
apart from being able to bear difficulties calmly and without complaint.
• Communication Skill: Communication skill refers to the ability of an entrepreneur to transfer ideas, plans, policies
and programmes to employees, debtors, creditors, customers and everyone who is connected with the business in order
to inform, influence and to express his feelings.
• Technical knowledge: An entrepreneur needs to address the rapid technical changes in the industry. Higher levels of
technology must be introduced in the production methods in order to achieve productivity demands. Therefore he must
up date his technical knowledge in order to serve customers quickly and more effectively.
• Social skill: Social skill of entrepreneurs include social perception (the ability to perceive others accurately),
expressiveness (the ability to express feelings and reactions clearly and openly), impression management (skill in

making favorable first impressions on others), and social adaptability (proficiency in adapting one’s actions to current
social contexts) in the process of managing his business.
DEVELOPING ENTREPRENEURIAL COMPETENCIES

There are certain inborn qualities while certain others can be acquired through education and training. Various competencies
can be cultivated or developed in the following way:
1) Gaining first hand knowledge about competencies
2) Competency recognition i.e.; competencies required.
3) Self Assessment i.e. measuring the extent of competencies he or she already possesses of the required competencies.
4) Comparison of competencies i.e. required competencies with individual competencies
5) Developing competencies and feedback i.e. going to acquire competencies through experts & Training, or EDP
COMMON MISTAKES BY ENTREPRENEURS IN PROJECT

FORMULATION
Entrepreneurs do make mistakes while selecting and formulating their projects and evolving business plans. Some
of the common errors found in project formulation are:
(1) Selection of project area: Entrepreneurs select wrong area of product or service by studying wrong or
exaggerated data of particular industries. This happens particularly when entrepreneur gets data from the
presentations and projections made by experts in the field or exhibitions or from trend analysis.
The selection of a product without detailed study of product market, demand patterns, competition in the industry,
change of customer taste and perceptions or mistaken overview of the demand pattern. Usually an entrepreneur
selects a product which he knows best or where he has worked for long years. Example: A marketing man in textile
is likely to choose textile as his product.
(2) Market study and analysis: Market research, study and analysis is a critical aspect for an entrepreneur in
selection of a product and market segment. Any decision based on scanty, wrong or un-organized data will give
a distorted demand picture leading to wrong choices. An entrepreneur should also choose products’ based on
the objective studies and not go by his previous experience, avoiding likes and dislikes in his personal capacity.
(3) Selection of technology: An appropriate technology is necessary for any new enterprise for its survival and
growth. A wrong selection of technology leads to problems of costs, profit margins and feasibility issues of the
entire project.
(4) Optimistic estimates: Over optimistic estimates by the entrepreneurs in the area of productivity, capacity
utilization, prevailing marketing conditions, under estimation of competitors and pricing give wrong selection
of products. Any business plan made by an entrepreneur based on wrong data, financial jugglery will give
problems in selection and implementation of the project.
(5) Ownership form: A suitable ownership form be evolved for the project to avoid stoppages and disputes.
(6) Selection of location: An entrepreneur should not be tempted select locations that are not viable. A location is
almost permanent to any project and as such plays an important role in cost competitiveness and viability of the
organization throughout its life. An entrepreneur is tempted usually on three counts, first the cheapness on and
second love of the native place of the entrepreneur and third the incentives offered by the government agencies
for location of industries. It could be seen that all the three alternative give a broad idea of the costs whereas the
selection be made only on the basis of techno-economic analysis and overall benefits to the proposed projects.
In order to process investment proposals and arrive at investment decisions, of the Planning Commission has
issued guidelines for preparing formulating industrial projects.

UNIT- IV
DEVELOPING A BUSINESS PLAN
Q: what do you mean by Environmental scanning? Why it is necessary for an entrepreneur?
Environmental Scanning: Once an idea has been generated about a product or a service, the next step is
environmental scanning. It is advisable to carry out environmental scanning as preliminary study before getting into
detailed project formulation. Different variables, in the external and internal environment should be scanned so as
to analyse the viability of a business. External environment variables like government, legal, socio cultural, political,
economic, demographic and technological are to be scanned to identify the opportunities and threats. Internal
environment variables like availability of raw material, machinery, finance and human resource, are to be scanned
to identify the strength and weakness. The information from as many sources can be collected regarding the
following variables:
Socio Cultural Appraisal: The study of social and cultural features of the society is important to
understand about the level of acceptance of the product or service offered. Features like religion, beliefs,
norms, fashions and fad, educational level, lifestyle, attitude towards consumerism and materialism and
many other affect the level of demand of the product. For example a company providing adventure sports
will not have many takers in counties which are considered conservatives. Such company will have better
prospects in western countries or societies which are not conservative.
Economic Appraisal: Various economic parameters like rate of industrial growth, gross national product
(GNP), per capita income, disposable income, rate of interest, presence of financial institutions and their
networks, sources of finance available, condition of primary and secondary markets, population growth,
rate of unemployment, rate of inflation, affect the viability of a business plan.
Demographic Appraisal: To identify the target market and its size, the variables like sex, age
distribution, income distribution etc, help in identifying the viability of a business.
Regulatory and Legal Appraisal: The legal and regulatory frame work is beyond the control of a
business owner yet it has the greatest impact on operations of a business. The incentives, grants, subsidies
can be very beneficial in establishing a business. While choosing a business venture, the factors like price
control, licensing, etc. should also be studied carefully.
Raw Material: the access to and availability of raw material at present and in near future should be
analysed. The difficulty in access and shortage in availability of raw material can bring the business to stand
still.
Production and Operation: the availability of various machinery, equipments, tools, etc. should be
analysed.
Market: presence of an attractive market having present, potential and latent demand.
Human Resource: assessing the availability of type and number of human resources required.
Procedure of Environmental Analysis

An EIGHT Step Environmental Analysis Process and Its Associated Outputs
1. Identify the Project: Identify the purpose and need of the proposed action. Develop a goal to provide a framework
for EA.
2. Scoping: Identify the issues, opportunities, and effects of implementing the proposed action.
3. Collect and Interpret Data: Collect data. Identify probable effects of project implementation.
4. Design of the Alternatives: Consider a reasonable range of alternatives. Usually at least three alternatives are
considered. Include a No-Action Alternative. Consider the mitigation of negative impacts.
5. Evaluate Effects: Predict and describe the physical, biological, economic, and social effects of implementing each
alternative. Address the three types of effects -- Direct, Indirect, and Cumulative.
6. Compare Alternatives: Measure the predicted effects of each alternative against evaluation criteria.

7. Decision Notice and Public Review: Select preferred alternative. Allow for review and comment by the affected and
interested public.
8. Implementation and Monitoring: Record results: Implement selected alternative. Develop a monitoring plan. Insure
that EA mitigations are being followed.
Environmental Analysis Techniques

ETOP (Environmental threats and opportunities profile): It was developed by glueck.
QUEST (Quick environment scanning Technique) proposed by B Nanus.
SWOT Analysis (Strength, Weakness, Opportunity, Threat)
PESTDN Analysis (Political, Economic, Social & Cultural, Technological, Demographical & Natural)
SWOT analysis (or SWOT matrix) is an acronym for strengths, weaknesses, opportunities, and threats and is a
structured planning method that evaluates those four elements of an organization, project or business venture. A
SWOT analysis can be carried out for a company, product, place, industry, or person. It involves specifying the
objectives of the business venture or project and identifying the internal and external factors that are favorable and
unfavorable to achieve that objective. Some authors credit SWOT to Albert Humphrey, who led a convention at the
Stanford Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune 500 companies.
However, Humphrey himself did not claim the creation of SWOT, and the origins remain obscure. The degree to
which the internal environment of the firm matches with the external environment is expressed by the concept of
strategic fit.
• Strengths: characteristics of the business or project that give it an advantage over others
• Weaknesses: characteristics of the business that place the business or project at a disadvantage relative
to others
• Opportunities: elements in the environment that the business or project could exploit to its advantage
• Threats: elements in the environment that could cause trouble for the business or project
Identification of SWOTs is important because they can inform later steps in planning to achieve the objective.
First, decision-makers should consider whether the objective is attainable, given the SWOTs. If the objective
is not attainable, they must select a different objective and repeat the process.
Users of SWOT analysis must ask and answer questions that generate meaningful information for each category
(strengths, weaknesses, opportunities, and threats) to make the analysis useful and find their competitive
advantage.
Below is an example SWOT analysis of a market position of a small management consultancy with specialism in
HRM.
Strengths Weaknesses Opportunities Threats

Reputation in marketplace Large consultancies

Shortage of consultants at Well established position operating at a minor level
operating level rather than with a well-defined
partner level market niche
Expertise at partner level Identified market for Other small consultancies

in HRM consultancy Unable to deal with consultancy in areas other looking to invade the
multidisciplinary than HRM marketplace
assignments because of
size or lack of ability
Q: Discuss the Business Planning process.

Or
Discuss the benefits of business planning to entrepreneurs.
Concept of Planning:
The word “plan” originated from then Medieval Latin word ‘planus’ which meant a level or flat surface.
Meaning of Business Plan
The business plan is written document prepared by entrepreneur that describes all the relevant external and internal
elements involved in starting a new venture. The business plans combines many functional plans such as finance,
marketing, human resources and manufacturing.
A business plan is a written statement of what entrepreneur hope to achieve in his/her business and how he/ she is
going to achieve it. It is a course of action that has been developed in order to reach the destinations determined by
an entrepreneur.
A business plan, also known as venture plan, loan proposal, investment proposal, is the written document that details
the proposed venture. Business plan must describe the current status, expected needs, and projected results of the
new venture. Every aspect of the new venture needs to be covered i.e., the project, marketing, research and
development, manufacturing, management, critical risks and financing. A description of all these aspects of the
proposed new venture is necessary to demonstrate a clear picture of what the new venture is where it is projected to
go and how entrepreneur proposes to reach there. It can be said that business plan is the entrepreneur’s roadmap for
a successful enterprise.
Objectives of Business Plan:

A business plan is outline of the step-by-step procedure that would be followed to convert a business idea in to a
successful business venture. Before preparing a business plan an entrepreneur identifies an innovative idea, followed
by identification of opportunities and threats through scanning of external environment and identify the internal
strength and weaknesses by evaluating internal environment, and finally assess the feasibility of idea so that proper
allocation of resources is achieved and the business plan get success.
Following purposes/objectives are served through business plan.

• Vision formulated by entrepreneur gets direction.
• Prospects of business evaluated neutrally.

• Help in identifying resources required to implement the plan.

• Provide guidelines to an entrepreneur for implementation of business plan.
• Implementation of plan could be monitored through follow-up.
• Others find incentive to join the business.
• Financial institutions grant the loan easily to entrepreneur.
• Organizational, operational and financial feasibility and market availability can be easily visualized.
• Strength, Weakness, Opportunities and Threats could be identified y scanning internal and external
environment.
• Help in identifying gap in information required about competition and market.
• Ownership arrangement, future prospects and projected growths of the business venture can be documented.
Benefits of Business Plan:

A business plan describes every major aspect of the business, including products, services, marketing, staffing, and
finance facilities. Financial projections are also central to any business plan. Since business plans summaries
operations of proposed business, lenders and investors demand to see them as tools for evaluating requests for
financing.
Benefits to Entrepreneur:
Benefits of developing business plan available to entrepreneur are given below.
1. Path for Business Success: Entrepreneurs often ask, “Why do they need a business plan?”
Because, writing a well-thought-out and organized business plan dramatically increases their odds of succeeding as
an entrepreneur. Running or starting a business without a business plan is like walking through the dark without a
flashlight. Entrepreneur can probably go a long way using just his/her senses and relying on basic instincts. But
operating in such a manner leaves them wide open to the risk that something will get in their way, like a competitor,
and entrepreneur probably won’t see it until it is too late.
2. Provides Information for Business Operations and its Smooth Functioning: The benefits of having a business
plan include: help an entrepreneur in clarifying their vision and deciding whether or not to proceed ahead with
the idea; help in determining if entrepreneur product and/or service has a sufficient market to support it and
whether or not it will be profitable; providing an estimate of venture’s start-up costs and how much entrepreneur
need to invest or finance; convincing investors and lenders to fund your business; help in defining entrepreneur
target market (who are or will be the customers) and how to best reach them through strategic marketing actions
or expanding market coverage or reach; help in establishing or re-evaluating entrepreneur competitive position
within the marketplace by conducting a thorough analysis of the competition ; help in defining corporate
objectives and programs to achieve those objectives; help business how to make money from the starting by
developing effective operational strategies; help in understanding the risks involved and anticipating potential
problems so entrepreneur can solve them before they become disasters.
3. Ensure Analysis and Evaluation of All Aspects of Business: The entire business plan process compels the
entrepreneur to analyze all aspects of the new venture and to prepare effective strategy to deal with uncertainties
that arises. Entrepreneur view the venture critically and objectively as the time, effort, research and discipline
needed to put the formal business plan together compel him to do so. The entrepreneur does close scrutiny of his
or her assumptions about the venture’s success as the competitive, economic, and financial analyses done by an
entrepreneur in business plan compel him to monitor success of plan.
4. Monitoring of Business Plan Success: Since all aspects of the business venture must be addressed in the plan,
the entrepreneur develops and examines operating strategies and expected results for outside evaluators. The
business plan quantifies objectives, and therefore providing measurable benchmarks for comparing forecasts with
actual results. Business plan provides the entrepreneur with a communication tool for outside financial sources
as well as an operational tool for guiding the venture towards success.

5. Provide Direction Towards Goals: Business plans provide a guideline for employees by outlining a company’s
best practices and mission statement. Employees can reference the business plan when unclear about what
direction the company is headed. Business plans inspire employees to act in conjunction with the goals of the
organization.
Benefits to Financial Sources/Investors: The financial sources are interested in evaluating business plan and able
get following details from business plan. Benefits of developing business plan available to investors are given
below:
1. Market Potential: Business Plan provides details about the market potential and plans for securing a share
of that market.
2. Venture’s Ability to Overcome Debt: Through prospective financial statements, the business plan
illustrates the venture’s ability to service debt or provide an adequate return on equity.
3. Indentify Critical Aspects: Business plan identifies critical risks and vital events with a discussion of
contingency plans that provide opportunity for the venture’s success.
4. Provide Information for Financial Evaluation: Business plan provides comprehensive overview of the
entire operations and gives financial sources a clear, concise document that contains the necessary information for
a thorough business and financial evaluation.
5. Evaluation of Managerial Ability: The financial source does not have prior knowledge of entrepreneur or
the venture; it is the business plan that provides a useful guide for assessing the individual entrepreneur’s planning
and managerial ability.
Errors to be avoided in Formulating Business Plan: A number of critical factors must be addressed when
planning and the pitfalls in the business plan should be avoided.
1. Avoid Errors in Setting Realistic Goals: The entrepreneur should avoid a situation of lacking any
attainable goals, lack of time frame to achieve goals, lack of priorities and lack of action steps.
The goal should be realistic in a sense that it should be specific, measurable and set within the time frame parameters.
2. Failure to Recognize Future Problems: Many times an entrepreneur is so engrossed in their idea that that
objectivity goes out of consideration and entrepreneur failed in recognizing the possible future problems associated
with goals and there is no room for contingency or alternative plans. What is needed is that obstacles must be
anticipated, and alternative strategies must be formulated.
3. No Commitment: Many entrepreneurs found lacking commitment to their venture which is reflected in their
desire for not to invest personal money in business; would like to initiate the business as a hobby and not as passion
and avoidance of professional appointments etc. What is needed is that the venture must be supported by all involved
i.e. family, partners, employees, team members etc.
4. Lack of Knowledge/ Experience of Business Idea: It is very important that entrepreneurs must demonstrate
their background especially with reference to their knowledge and experience in the area of business idea. Many
ideas fail because many beginners of business attempt to promote ideas for which they lack any knowledge; lack of
experience; lack of understanding of the venture’s industry etc. to avoid this entrepreneur needs to provide evidence
of his/her personal experience, knowledge and skills related with proposed venture.
5. No Clarity about Market Segment: Many ideas are proposed by an entrepreneur without identifying the
potential customer groups because the product or service is the liking of entrepreneur and it does not guarantee that
others will also like the same product. The only possible way to avoid this is to have a market segment specifically
targeted and entrepreneur must demonstrate that why and how the specific product or service will meet the needs
of this target group.
BUSINESS PLANNING PROCESS

A plan which looks feasible at the first instance might actually not be when its details are referred. Before preparing
the plan entrepreneur should make an effort to do preliminary review starting should be from making review of the

available plans; followed by drawing key assumptions about competition, growth of market economic variables;
SWOT analysis by scanning internal and external environment; and if required get the professional advice from a
person engaged in a similar business activity. Therefore, documenting business plan is important activity and
preparation of business plan needs to follow process which is given below. (1) Identifying and Generating the Idea
(2) Assessment of Environment
(3) Analysis of Idea’s Feasibility
(4) Preparation of Project Report
(5) Evaluation and Monitoring
(1) Identifying and Generating the Idea: The basic function of an entrepreneur is not only to do innovation in
the form of creating a new product, service but they need to offer concept, product and service to customers,
employees and shareholders with major or key value addition in its offerings. Hence, an entrepreneur keep in mind
the key word of value addition right from the first activity he initiate for his venture. An entrepreneur as a creative
person work on entirely new innovative idea, add the value to the idea and come out with a product as a solution to
the needs of people.
Even if idea is not new only value addition to existing product is also considered as creation of innovative product
or service. So idea generation is the first stage of planning process involves creation of new ideas, or service to
satisfy existing demand, latent demand or future demand of the market. If entrepreneur does not have idea he can
use various sources of idea generation which includes consumers; employees; intermediaries such as dealers and
retailers; existing companies offerings; laboratories; research and development activity etc.
In order to get ideas from such sources entrepreneur use various methods of generating new ideas such as
Brainstorming, Reverse Brainstorming, Brain writing; Group discussion; Collection of information through
questionnaires from existing customers, dealers, retailers; Ideas are invited through Advertisements, Mails and use
of Internet; Market research; addition of value to the current product/service etc. Many times entrepreneur organize
contest to identify ideas through TV channels and other Medias to invite participation to get best business ideas.
Entrepreneur should do screening of these new ideas to eliminate impractical ideas.
(2) Assessment of Environment: After generating ideas the next step is to assess the environment for analyzing
prospective strengths, weakness, opportunities and threats of the business enterprises. In order to know whether
opportunity exists for the idea generated it is advisable to scan both external and internal environment which help
in collecting information about the possible opportunities, threats from the external environment and strength and
weaknesses from the internal environment. Various variables to be scanned includes economic, socio-cultural,
technological, Governmental and demographic changes taking place in external environment and variables of
internal environment includes availability of finance, machinery, raw material manpower etc. Entrepreneur fulfill
the objective of collecting maximum information from informal sources such as friends, family, colleagues etc. and
formal sources such as newspapers, magazines, Government records, seminars and conferences, dealers,
competitors, suppliers etc.
The appraisal of socio-cultural environment includes variables such as norms, beliefs, values, fashions of a particular
society which help in understanding the level of flexibility and rigidity of a given society towards a new product or
service or concept. Technological assessment includes appraisal of available technological know-how and future
technologies to convert an idea in to a product.
Appraisal of economic environment includes assessing the economic status in terms of per capita income, inflation,
consumption pattern, and balance of payments, fiscal and monetary policies which help in identifying whether
opportunities for growth and development exists in economy. Such knowledge provides confidence to entrepreneur
for success of their business venture. The appraisal of various policies, incentives, legislation, grants, and procedures
formulated by Government help an entrepreneur to decide whether to run or establish the business or wait for
favourable approach form the Government. The demographic environment assessment includes apprising overall
population pattern in a particular geographic region considering variables like age profile, population distribution,
income distribution etc. which help in identifying size of market available for product or service of an entrepreneur.

Assessment of internal environment includes assessment of availability of required raw material; production
machinery, equipments, techniques, tools; availability of required finance in terms if start-up expenses, fixed and
running expenses etc. It also includes assessing the present, potential and latent demands of the market as well as
assessing kind of human recourse required and its availability in the labour market. The basic objective of
environmental scanning is to collect as much information as possible to from as many sources as possible to meet
the information requirement for enhancing the probability of success in this business.
(3) Analysis of Idea’s Feasibility: Considering the scanning of the environment entrepreneur is interested in
knowing whether the entire project of new venture is feasible or not. For this reason entrepreneur would conduct
feasibility study considering various variables or dimensions or areas such as analysis of market; analysis of
technical and operational aspect; financial feasibility and drawing various functional plans such as marketing plan,
production plan, ownership plan and financial plan.
The market analysis includes estimating demand and market share of the proposed product or service in future based
on factors like availability of substitute goods, consumption pattern, competition etc. For estimating demand
preliminary discussions were made with intermediaries, consumers, suppliers, competitors etc. and consumer
preferences and potential demands estimation is made.
Analysis of technical and operational aspect includes assessment of operational ability of proposed business
considering the cost and availability of technology which is critical for business. For technical/operational analysis
information is collected considering parameters such as availability of material; planning of required material;
feasible/economic location of business; production capacity of proposed business; machinery and equipment and
plant layout etc. Analysis of financial feasibility includes carrying out cost estimates of land and building; plant and
machinery; preliminary estimates of marketing and administrative expenses; provision for contingencies; working
capital estimates; cost of production and projection of profits. Thus, financial analysis includes projection of Break-
Even Point, Cash Flow Statement, and Balance Sheet Statement.
After positive indication form feasibility study the functional plans are drawn. The marketing plan includes
formulating potential strategies in terms of marketing mix based on target market identified by market feasibility
study. Production plan is drawn by entrepreneur involved in a manufacturing sector and entrepreneur involved in
service sector prepare operational plans. These production and operational plan includes strategies related with
suitable location of business; physical layout of plant; availability and cost of raw material, machinery, and
equipment; cost of manufacturing and operations, production capacity; production planning and scheduling;
inventory management; quality management and control and expansion of business.
The organizational plan includes choosing ownership pattern form various forms of business organization such as
sole proprietorship; partnership; company of franchising. It will determine the organization structure in which the
relationship between human resources and other resources are developed. Financial plan indicates the financial
requirements of the proposed business considering costs related with marketing, operations, human resources and
smooth functioning of business. In covers preparation of projected cash flows, income statement, break-even point,
ratios and balance sheet.
(4) Preparation of Project Report: After assessing environment and feasibility of idea entrepreneur now start
preparing report which is a written document describes the strategies involved in starting and running the business.
Report helps entrepreneur to monitor whether the business is growing as projected in business plan. Project report
can be an evaluation tool for investors and financial institutions to provide required finance to proposed business.
Project report ensures utilization of resources and put the organization on a path of sustainable growth. The project
report should be arranged in a sequence; cover all the details about the proposed venture; should not be very lengthy;
should be logical and subjective; should justify financial needs, market prospects and should be professionally made
to demonstrate that promoters of business possess entrepreneurial insight and sound experience.
(5) Evaluation and Monitoring: It is important to continuously review and evaluate the business because
technology is changing continuously and business is facing intense competition in globalized world. The dynamic
environment compels an entrepreneur to evaluate, control and review the business at regular interval to introduced
changes and match with dynamic environment.

Q: What is a project? Discuss the characteristics and classification of a project. Project

A Project simply means an investment opportunity exploited for profit. It is an idea or plan which is intended to be carried out
or a finite task to be completed.
In the words of Gillinger “Project is a whole complex of activities involved in using resources to gain benefits”.
The World Bank defines a project as ‘an approval for a capital investment develops facilities to provide goods
and services’.
CHARACTERISTICS OF A PROJECT
A project is undertaken to achieve a purpose. The following are the characteristics of a project.
• A project involves investment of money and money’s worth.
• The objective of a project is to earn profit.
• It is concerned with production of goods and services.
• Every project has risk and uncertainty associated with it.
• It has a fixed set of objectives.
• It is subjected to a lot of change.
• It has a definite beginning and an end.
• It has a life cycle reflected by growth, maturity and decay.
• It is combination of various elements such as technology, equipment, materials, machinery and people.
• A project requires team work.
CLASSIFICATION OF PROJECTS
The different classifications are explained below:
1) QUANTIFIABLE AND NON-QUANTIFIABLE PROJECTS:
Quantifiable projects are those in which quantitative assessment of benefits can be made. Projects for industrial
development, power generation, mineral development etc. fall under this category.
Non quantifiable projects are those in which the benefits cannot be measured quantitatively. Projects involving health,
education and defence fall under this category.
2) SECTORAL PROJECTS:
According to planning commission of India, a project may fall in the following sectors:
a) Agriculture and allied sector.
b) Irrigation and power sector.
c) Miscellaneous sector.
d) Transport and communication sector.
e) Industry and mining sector.
This classification is useful for resources allocation at macro levels.
3) TECHNO-ECONOMIC PROJECTS:
Projects may be classified into the following three groups:
A) Factor Intensity Oriented Classification: Project may be classified as Capital intensive or Labour intensive. If
large investment is made in plant and machinery the project will be called
Capital intensive. If large investment is made in human resources, the projects will be termed as Labour-intensive.
B) Causation Oriented Classification: It is classified as demand based or raw material based projects. If a project is
started by an entrepreneur due to non-availability of certain goods or services and consequent demand for such
goods or services the project is said to be based on demand. If project is started by an entrepreneur simply because
of the availability of certain raw materials, skills or other imputs, the project is said to be based on raw material.
C) Magnitude Oriented Classification: The size of investment forms the basis of classification. May be classified
as Large-scale, Medium-scale and Small-scale.
4) FINANCIAL INSTITUTIONS CLASSIFICATION:

The projects are classified according to their age and experience and the purpose for which the project is being taken up. They
are as follows:
A) Profit Oriented Projects: 1) New projects.
2) Expansion projects.
3) Modernization projects.
4) Diversification projects. B) Service Oriented Projects: 1) Welfare projects.
2) Service projects.
3) Research and development projects.
5) ACCORDING TO THE URGENCY OF THE EXECUTION:
It is classified into three. They are as follows:
A) Normal Projects: In this type of project adequate time is allowed for implementation.
This type of project will require minimum capital cost.
B) Crash Projects: Additional capital costs are incurred to save time. It is normally achieved in procurement and
construction where time is brought from vendors and contractors by paying extra money to them.
C) Disaster Projects: Vendors who can supply within a very short time are selected irrespective of the cost. Naturally
capital cost will go up very high but projects time will get much reduced.
PROJECT IDENTIFICATION
Initial phase of the project development cycle.
GENERATION OF PROJECT IDEAS
It is the process of collection, compilation and analysis of economic data for the purpose of finding out possible opportunities
for investment and with the development of the characteristics of such opportunities. Emergence of project ideas from different
sources is called generation of project ideas. The idea should be sound and workable, so that it may be exploited. The
entrepreneur has to be imaginative and foresighted to discover a business/Project idea.
SOURCES OF THE PROJECT IDEAS

The business idea arises from an opportunity in the market. Entrepreneurs should have a keen and open mind to look for
opportunities and generate business ideas. It is not a matter of analysis but of instinct. Ideas come from many sources. Some
of the sources are as below: Our own needs
Trade and professional journals.
Project profiles.
Trade fairs and exhibitions.
Success stories of friends and relatives.
Prospective consumers.
Research organisation.
Utilisation of waste materials.
Study of government policy.
Development of other nations.
Items reserved for small scale units.
SCREENING OF PROJECT IDEAS

The need for screening of the ideas arises because all the ideas generated may not be promising. Only the most promising or
most profitable ideas are to be selected for further study.
The process of evaluating the project ideas with a view to select the best and promising idea after eliminating the unprofitable
ideas is called screening of project ideas. The following factors need to be considered:

• Cost of the Project: A study of the cost structure under material cost, labour cost, factory overheads etc., will give a
good idea regarding different types of costs.
• Profitability: The project yielding higher return must be selected.
• Marketing Facilities: Existing and potential demand in domestic and export market, nature of competitions, sales and
distribution system, consumption trends etc., should be assessed and evaluated before taking the final decision.
• Availability of Inputs: The resources and inputs required for the project must be reasonably assured. The availability
of skilled workers is to be ensured before launching an enterprise.
• Consistency with Government Regulations and Priorities.
• Compatibility with the Entrepreneur: The idea must suit the interest, personality and resources of the entrepreneur.
It should not be beyond his capacity.
Constraints in Project Identification

• Internal Constraints in control of Entrepreneur
• External constraints not in control of Entrepreneur
PROJECT FORMULATION
It is the process of examining technical, economic, financial and commercial aspects of a project. It is the process and steps
through which an opportunity becomes a project in which the entrepreneur is willing to invest his time, money and other
resources. This study is undertaken to find out whether the proposed project would be feasible or not.
Need for project formulation

The following are the major problems:
• Knowledge About Government Regulations: The entrepreneur must have a thorough knowledge about
Government regulations, policies, licensing procedures etc.,
• Absence of External Economies: A project has to depend upon other industries for the supply of raw material, power,
spares etc,
• Non-Availability of Technically Qualified Personnel.
• Resource Mobilization.
• Selection of Appropriate Technology: Modern technologies developed in the advanced countries may not be suitable
for adopting in the developing countries.
ELEMENTS OF PROJECT FORMULATION

It involves a number of elements, they are summarized as below:
Feasibility Analysis: It involves an examination of the project idea in the light of internal and external constraints.
Internal constraints arise because of limitations of the project sponsoring body and external constraints arise due to
the characteristic of the environment. If on feasibility analysis, the project is found feasible, the same is put to further
analysis.
Techno-Economic Analysis: It is mainly concerned with the identification of the project demand potential and selection
of the optimal technology suitable for achieving the project objectives. This study includes:
Estimation of Demand or Market Potential: The entrepreneur has to estimate the expected share of the
sale in the market, intensity of competition, mobility of products to other places etc., the data collected
from various sources are first complied, tested and tabulated in a form suitable for interpretation.
Selection of Technology: It refers to that combination of controlled variables which will ensure the
achievement of the project objectives with minimum expenditure of resources.
Project Design and Network Analysis: A project comprises certain sequential activities which are interrelated. These
activities can be shown in the form of a diagram, which is called network diagram. Project design is concerned with

the development of a detailed work plan of the project and its time estimates. When a network is designed, its analysis
is carried out to identify the optimal course of action so as to complete the project with the minimum of time and cost,
subject to the available resources. Important network analysis techniques are PERT (Programme Evaluation Review
Technique) and CPM (Critical Path Method).
Input Analysis: Input analysis is primarily concerned with the identification, qualification and evaluation of project
inputs. The objective of input analysis is to identify nature of resources needed to estimate the quality of the required
resources and to ensure that there is continuous and adequate supply of inputs. Input analysis is the basis for financial
analysis and cost benefit analysis.
Financial Analysis: It involves estimates about the project costs and revenues and the funds required for the project. It
seeks to find out whether the project will generate income to realize the ultimate objective for which it is undertaken.
Social Cost Benefit Analysis: Under cost benefit analysis the investment projects are evaluated from the point of view
of the society as a whole. The cost benefit analysis aims at analyzing the real contribution of an investment project
towards welfare of the country as a whole. It implies the enumeration and evaluation of all the relevant costs and
benefits. It can be applied to both private and public investments.
Pre-Investment Appraisal: The proposal gets the final and formal shape. The purpose of pre-investment appraisal is
to enable the concerned authorities to take an investment decision about the project i.e. to accept or reject.
Q: write short notes on project report. What are the contents of a project report?
PROJECT REPORT
A project report may be defined as a document with respect to any investment proposal based on certain information and factual
data for the purpose of appraising the project. It states as to what business is intended to be undertaken by the entrepreneur and
whether it would be physically possible, financially viable, commercially profitable and socially desirable to do such a business.
Project report is an essential document for procuring assistance from financial institutions and for fulfilling other formalities
for implementation of the project. The project report (Detailed Feasibility Report) is based on a preliminary report or
preinvestment report. Thus the project report is a post investment decision report.
OBJECTIVES OF THE PROJECT REPORT

The basic aim of a project report is to assess the financial viability of a project as well as the soundness of its production,
marketing and other related aspects. It serves the following main objectives.
1) It facilitates business planning and planning the future course of action.
2) It enables an entrepreneur to compare different investment proposals and select the most suitable project.
3) It provides a SWOT analysis, wherein the strengths, weaknesses, opportunities and threats involved in the projects as shown.
4) The project report enables the entrepreneur to ensure that he is proceeding in the right direction.
5) In case of public sector projects this report would also enable the concerned authorities to take an objective decision on the
project.
6) It facilitates project appraisal.
7) It helps the financial institutions to make appraisal as regards financial, economic and technical feasibility.
IMPORTANCE OF PROJECT REPORT

Project report is a written plan of the project to be undertaken for the attainment of objective. It enables an entrepreneur to
know the inputs required and confirms that he is proceeding in the right direction. It spells out the reasons of allocating resources
of the firm for the production of goods and services during a specific period. An important aspect of the project report lies in
determining the profitability of the project with minimum risks in the execution of the project. The important uses of P.R. are
summarized as follows:
It helps the entrepreneur in establishing techno-economic viability of the project.
It helps in getting term loan from banks and financial institutions.
It helps in approaching bank for getting working capital loan.
It helps in securing supply of scarce raw materials also gives a general idea of resource requirements and means of
procuring them.

It shows the feasibility of the project and possibility of achieving profits.
CONTENTS OF PROJECT REPORT

It contains relevant information in detailed and systematic manner as below:
1. INTRODUCTION: General information regarding the company and production description.
2. BACKGROUND OF THE PROMOTER: - Name, address, age, family background, educational qualification, work
experience, investment potential etc.
3. PRODUCT: - Details of products to be produced, details of application of the product, proposed product mix, product
standard etc.
4. MARKET AND MARKETING:- Market potential analysis, major buyers, area to be covered, trade practices, sales
promotion devices, trade practice and trade channels adopted by the competitors, demand analysis, proposed market
research etc.
5. LOCATION: - Locational advantages, criteria for selecting the location, exact location of the project, other choices.
6. PRODUCTION PROCESS: - Details of technology, process flow chart, manufacturing process, production
programme etc.
7. RAW MATERIAL: - List of raw material required in terms of quality and quantity, sources of requirement, cost of
raw material etc.
8. UTILITIES: -Water, power, steam-sources and costs, effluent disposal etc.
9. TRANSPORT AND COMMUNICATION: - Method, possibility of getting and costs of transport.
10. MANPOWER REQUIREMENT: -Requirement of skilled, semi-skilled personnel, technical and non-technical
personnel, cost of procurement, capacity, and suppliers cost, alternatives available, cost of miscellaneous assets.
11. LAND AND BUILDING: - Land area, construction area, cost of construction, detailed plan, plant lay out along with
cost.
12. PLANT AND MACHINERY: - Details of machinery and equipment required.
13. COST OF PROJECT AND SOURCES OF FINANCE: - Working capital required, preliminary and pre-operative
expenses, contingencies and arrangements for the meeting the cost of project.
14. FINANCIAL VIABILITY OF THE PROJECT: -Cost of production and profitability for the first years, break even
analysis, and analysis of cash flow and fund flow statements.
REQUISITES OF AN IDEAL PROJECT REPORT

The essentials of an ideal project report are as follows:
• Project report should be prepared with the help of an expert team.
• Assumptions in the project report should avoid extremities.
• Project report is the means and not the end.
• Product demand, capital resources, raw material availability, labour resources etc must be estimated properly after
considering varied factors.
• Project report should be based on proper survey and systematic preliminary study of the project.
• Thorough discussions must be made with experts, various personnel of concerned departments before finalizing the
report.
• The end result should be to receive finance and to get the project implemented.
• Complete satisfaction of the entrepreneur/promoter should be ensured before the report is submitted to the financial
institutions.
PROBLEMS FACED IN THE PREPARATION OF PROJECT REPORT
An entrepreneur may face the following problems in the preparation of a project report:
1) Strict condition of promoter’s contribution may dampen the enthusiasm of entrepreneurs.
2) All lending institutions demand a lot of documents before credit is granted.
3) Problems regarding working capital assessment due to unrealistic assumptions.

4) Time overrun will lead to cost overrun.

5) Lending institutions expect strict specifications with regard to size of the land, buildings, sources of machinery, their costs
etc.
6) A number of clearances have to be obtained from the government departments. This causes strain and wastage among
entrepreneurs.
Q: Discuss the contents of an ideal business plan.

COMPONENTS OF AN IDEAL BUSINESS PLAN
A business plan consists of the following sections:
1. Executive summary
2. Business Description
3. Market Plan
4. Competitive analysis
5. Operations and Management Plan
6. Financial Plan
7. Appendices
1. Executive Summary: The statement should be short, may be of one or two pages. It should explain the
fundamentals of the proposed business: What will be the product? Who will be the customers? Who are the owners?
What future holds for the business and the industry?
It should be professional, complete, and concise and above all should sound enthusiastic. If purpose of making the
business plan is to get a loan, it should be clearly stated that how much loan is required, how it is going to be used,
and how the money will make the business more profitable, thereby ensuring repayment.
2. Business Description: It is important to describe what business will you be in and what will you do. To
describe one’s business, following key elements may be included:
Mission Statement: Many companies have a brief mission statement, usually in 30 words or fewer,
explaining their reason for being and their guiding principles. Although it is not compulsory to have a
mission statement, but it is a good to have one as it serves as a guiding point.
Company Goals and Objectives: Goals are destinations—where you want your business to be.
Objectives are progress markers along the way to goal achievement. For example, a goal might be to have
a successful company that is a leader in providing quality products. Objectives might be annual sales targets
and some specific measures of quality achievement.
Industry Description: Describe your industry. Is it a growth industry? What changes do you foresee in
the industry, short term and long term? How will your company be poised to take advantage of them?
Target Market: Target market tells about the customers to whom the product will be marketed. It should
be briefly stated here as detailed explanation will be covered under marketing plan section.
Competitive Edge: Describe your most important company strengths and core competencies that will
make the company succeed? It could be a better service, a wider range of products, better after sales services
etc. What background experience, skills, and strengths do you personally bring to this new venture?
Structure: describe the type of operation, i.e. wholesale, retail, manufacturing or service-oriented. Also
state whether the business is new or already established.
Legal form of Ownership: State the form of ownership adopted like - Sole proprietor, Partnership,
Corporation, Limited liability corporation (LLC)? Why have you selected this form?
3. Market Plan: A good entrepreneur with poor marketing plan will face an early disaster. Any product or service
has to be marketed competently. A market plan describes the strategies to be adopted for marketing of the product.

It is a result of market analysis. A market analysis helps in knowing about various aspects of the market so that the
target market can be defined and the company can be positioned in order to capture desired market share. Market
analysis enables the entrepreneur to establish the strategies regarding the marketing mix i.e. the four P’s- product,
price, place (distribution) and promotion. These strategies:
Will allow the company to become profitable within a competitive environment. Provides an indication
of the growth potential within the industry.
Helps in developing estimates for the future of proposed business.
As discussed in earlier section, market analysis has enabled the entrepreneur in:
Defining the Market in terms of size, structure, growth prospects, trends and sales potential.
Defining the Target Market: The segmentation factors can be geographic, customer attributes or
product oriented. If the distribution of the product of the proposed business is confined to a specific
geographic area being a small business, the target market can be defined as number of users of that product
within that geographic area.
Defining Total Feasible Market: The total feasible market is the market that can be captured provided
every condition within the environment is perfect and there is very little competition. Although this situation
is not true in most industries. The factors that affect the share of the feasible market a business can are
obtain are - structure of the industry, the impact of competition, strategies for market penetration and
continued growth, and the amount of capital the business is willing to spend in order to increase its market
share.
Estimating Market Share for the Time Period the Plan will Cover: It is calculated after considering
the projected growth of the market and the expected conversions from the competitors. After the above
mentioned details have been estimated through market analysis, the strategies regarding the marketing mix
i.e. the four P’s- product, price, place (distribution) and promotion should be developed and included in the
business plan. The key strategies should be regarding:
Describing Product: Describe in depth the products or services (technical specifications, drawings,
photos, sales brochures, and other bulky items are to be included in Appendices). Describe the most
important features including the after-sale services provided like warranty, service contracts, support,
follow-up, and refund policy.
Pricing of Product: Pricing strategy should fit with what was revealed in competitive analysis. Prices
should be compared with those of the competitor. Most small businesses go for low pricing. This is not a
good strategy as it decreases profit margin; customers may not care as much about price if they have a good
quality product. The better strategy will be to have average prices and competing on quality and service.
Distribution: includes the entire process of moving the product to the customer. The type of distribution
set up chosen will depend on the structure of the industry and the size of the business. The business plan
should clearly indicate how products or services will be sold (Retail, Direct mail order, Web catalog,
Wholesale, Sales force, Agents, Independent representatives, etc.)
Promotional Plans: promotional plans will have to be initiated over a period of time. Promotion strategy
regarding advertising campaigns, seasonal discounts or improved packaging have to de described in detail
like: What media, why, and how often? Cost effectiveness of various methods to get the most out of the
promotional budget? Will you use methods other than paid advertising, such as trade shows, catalogs, dealer
incentives, word of mouth (how will you stimulate it?), and network of friends or professionals? What
image do you want to project? What will be the promotional Budget? How much will be spend on what all
items listed above, before startup and after startup?
4. Competitive Analysis: The purpose of the competitor analysis is to determine the strengths and weaknesses of
the competitors within the market, strategies that will provide business with a distinct advantage, the barriers
that can be developed in order to prevent competition from entering the market, and weaknesses that can be
exploited within the product development cycle. The questions to be answered are: What products and
companies will compete with you? List your major competitors and state whether competition is full or just for

certain products, certain customers, or in certain locations? Will you have important indirect competitors from
businesses? (For example, mobile phones manufacturing companies compete with cameras making companies,
although they are different types of businesses). Strategies should be so designed that they are primarily based
on competitive advantage and that they set the product or service apart from the competitors.
5. Operations and Management Plan: This section will describe:
Operational procedures, manufacturing equipment, level of production required, locations, licensing and
other aspects related to providing the product or service.
The organizational structure has to be well defined and based within a realistic framework given the
parameters of the business. Organize tasks into departments that produce an efficient line of
communications between staff and management. Establish the function of each task and how it will relate
to the generation of revenue within the company.
Human resource requirement: Determine the number and type of personnel required to perform each
task, where the right employees will be found, what will be the pay structure, what type of labor (skilled,
unskilled, and professional) will be required? Determine who does which tasks and prepare schedules and
written procedures. If the business seems to have more than 10 employees, it is good to create an
organizational chart showing the management hierarchy and who is responsible for key functions. Include
position descriptions for key employees.
If purpose of business plan is to secure loans from investors, resumes of owners and key employees
should be included. List of following should also be included: Board of directors, Management advisory
board, Attorney, Accountant, Insurance agent, Banker, Consultant or consultants, Mentors and key
advisors.
6. Financial plan: The enterprise should have sound financial regulations. An exact assessment of the revenue,
costs, profits and losses, cash-flow dynamics, stock of raw materials and finished products, loans etc. has to be
reflected in the financial profile. Critical assessment of the finances and its dynamics help in the holistic assessment
of the enterprise. More important, the process of thinking through the financial plan will improves insight into the
inner financial workings of the company.
The three common financial statements need to be prepared are - cash flow statement, profit and loss account and
the balance sheet. Together they constitute a reasonable estimate of the company’s financial future.
The profit and loss statement tells how much money the business earns over a given period of time. A
twelve month profit and loss projection and a four-year profit and loss projection (optional) are to be
prepared.
The cash flow statement is an information tool telling how much cash is needed to meet obligations,
when will it be needed and where is it coming from. If the profit projection is the heart of a business plan,
cash flow is the blood. Every part of the business plan is important, but none of it means a thing if the
business run out of cash. Businesses fail because they cannot pay their bills. It is important to plan how
much cash is needed before startup, for preliminary expenses, operating expenses, and reserves. It will
enables to foresee shortages in time to do something about them—perhaps cut expenses, or perhaps
negotiate a loan.
The cash flow projection is just a forward look at the checking account. For each item, determine when
actual receipt of cash (for sales) will happen or when actually the cash will be needed. Essential operating
data, should be kept track of, which may not be the part of cash flow as it allows controlling items that have
a heavy impact on cash flow, such as sales and inventory purchases. Cash outlays should also, be kept track
of, prior to opening in a pre-startup stage. Cash flow shows whether the working capital is adequate.
Balance sheet is a summary of all the financial data giving a macro view of the company at a given point
of time. It is one of the fundamental financial reports that any business needs for reporting and financial
management. It shows what items of value are held by the company (assets), and what its debts are
(liabilities). When liabilities are subtracted from assets, the remainder is owners’ equity.

Break-Even Analysis can be prepared. It predicts the sales volume, at a given price, required to recover
total costs. In other words, it’s the sales level that is the dividing line between operating at a loss and
operating at a profit.
7. Appendices: It includes details and studies used in the business plan; for example:
Brochures and advertising materials
Industry studies
Blueprints and plans
Maps and photos of location
Magazine or other articles
Detailed lists of equipment owned or to be purchased
Copies of leases and contracts
Letters of support from future customers
Any other materials needed to support the assumptions in this plan
Market research studies
List of assets available as collateral for a loan
Q: what is a feasibility analysis? Discuss in brief.

Feasibility Analysis: Feasibility study is undertaken after environmental scanning. Environmental scanning gives
an idea about the internal and external factors that might affect the viability of a business. It tells whether it makes
sense or not to actually start the proposed business. After environmental scanning an idea might lose its
attractiveness and might be dropped. If an idea seems good enough to proceed after environmental scanning, the
next step undertaken is of feasibility study. Feasibility study is a detailed study conducted to analyse the feasibility
of a project in a particular environment. The environmental scanning forms the platform on which the feasibility
study will be build. Although, feasibility study is dependent on environmental appraisal, yet it is much more
detailed.
The various dimensions of a feasibility study are:
a) Market Analysis: A business cannot succeed without effective marketing. Effective marketing can be
achieved through systematic marketing research. It is important to know about the intended market. The market
analysis should be carried out in a way so as to answer the following questions:
• What is the total size of the market?
• What percent share of the market will you have?
• Current demand in target market.
• Trends in target market—growth trends, trends in consumer preferences, and trends in product development.
• Growth potential and opportunity for a business of your size.
• What are the barriers to entry in this market viz. :
o High capital costs o High production
costs o High marketing costs o
Consumer acceptance and brand
recognition o Training and skills o
Unique technology and patents o Unions
o Tariff barriers and quotas o How these
barriers can be overcome?
b) Technical/ Operational Analysis: Technical/ operational analysis is done to assess the operational viability of
the proposed business venture. Key questions to be answered are:

• What will be the Production techniques and costs?

• How will the Quality be controlled?
• How will the Inventory be controlled?
• What type of location will be needed? Is it important that your location be convenient to transportation or to
suppliers?
• What type of Physical requirements like Amount of space and Type of building will be required?

• What will be the type of utilities like power, water etc, will be required?
• What kind of inventory will be required: raw materials, supplies, finished goods? How will it be acquired?
• Who are the key suppliers?
c) Financial Feasibility: After the market analysis and techno- operational analysis, financial feasibility of the
proposed venture is assessed. Following costs are estimated:
• Cost of land and building

• Cost of plant and machinery
• Preliminary cost: expenses in conducting market survey and feasibility study, establishment expenses,
expenses in raising capital, etc.
• Working capital estimates
• Cost of production: raw material cost, labour cost, overhead expenses, utilities.
• Profitability projections: Are achieved after determining gross profit through summation of cost of
production, selling expenses, administrative expenses and expected sales.
d) Economic/Social Cost-benefit Analysis

This is concerned with judging a project from the larger social point of view, where in the focus if on social costs
and benefits of a project, which may often be different from its monitory costs and benefits. The questions to be
answered in social cost-benefit analysis are as follows.
• What are the direct economic benefits and costs of the project measured in terms of shadow (efficiency)
prices and not in terms of market prices?
• What would be the impact of the project on the distribution of income in the society?
• What would be the impact of the project on the level of savings and investment in the society?
• What would be the contribution of the project towards the fulfillment of certain like self-sufficiency,
employment and social order?
UNIT - V
Process of Setting up a Business
LAUNCHING A NEW VENTURE
A mit Kumar Dubey (Asst. Prof.) Page 55
Q: Discuss the different forms of business.

FORMS OF BUSINESS OWNERSHIP
The business units which undertake business activities are known as business organizations and are also called business
undertakings, enterprises, concerns or firms. Starting, owning, and operating business is a complicated process for entrepreneur
as it involves taking decisions for choosing suitable form of the business organization and it must be made in the backdrop of
a multitude of legal and practical considerations.
Meaning:
The resource of the organization needs to be properly combined to conduct the business successfully. This is because the term
Business Organisation itself utter that all the necessary arrangements required for conducting a business which includes all
those steps that need to be undertaken for establishing relationship between four M’s i.e. Men, Material, Money and
Machinery in order to earn profits through carrying the activities of business efficiently. This is called the process of organizing
through which all the arrangements are made for grouping the resources and activities in the organization and relationship is
developed between them. The understanding of business organisation requires gaining knowledge of various characteristics
which help in better understanding of organisation.
Characteristics of Business Organisation:
Distinct Ownership: Ownership is the right of an individual or a group to acquire and make the use of legal title of
assets or properties for the purpose of running the business. In order to enjoy the gains or profits from such possessions
of title to assets or properties and its rational or optimum use, a business firm may be owned by one individual or a
group of individuals jointly and control the business.

Separate Status and Management: Every business undertaking is considered as having an independent body; has its
own assets and liabilities; has its unique way of functioning and are accountable for its outcomes. The profits earned
or losses incurred by one firm cannot be accounted for by any other firm.
Continuity of Business Operations: Any business unit having just one single operation or transaction is not a business
unit. On a continuous basis all business enterprises needs to engage its resources in specific operation needed for
particular business.
Lawful Business Activities: Every business enterprise must undertake lawful business activities and the business must
not involve activities which are illegal in nature.
Business Activities Deals with Goods and Services: Every business undertaking is engaged in the production and/or
distribution of goods or services in exchange of money.
Risk Involvement: Risk and uncertainty are attached with business undertakings and are always providing opportunities
as well as threats. Future conditions are related with environment especially external environment which are
unpredictable and uncertain and influence the business operations. This makes business decisions risky, thereby
increasing the chances of loss arising out of business.
Forms of Legal Ownership
Enterprise
Commercial Industrial Private Sector Public Sector
Individual ownership Group ownership
Sole proprietorship i. Partnership i. Govt. Dept.
ii. Company ii. Public Corporation
iii. Co-operative society iii. Company
iv. Hindu joint family firm
Forms of Business Organization

The most important forms of business organisation are as follows:
Sole Proprietorship
Partnership
Company
Other Application of these forms (Franchising)
Sole Proprietorship: A sole proprietorship is owned by only one person. This is the most common form of business
ownership.
Partnership: A business owned by two or more people. The partners share ownership and control of the business.
Company: A company is a business which is considered a separate entity from owner; even having the legal rights of a person.
Franchising: Franchising is a business arrangement in which the owner of a trade mark, trade name, or copy right has licensed
others to use it in selling goods or services. It can be sole proprietorship, partnership or company form.
Each form has its advantages and disadvantages. And the choice of form of business ownership will directly affect how much
taxes owner have to pay and what business licenses and documents are required.
Factors for Comparing Forms of Business Ownership:

Concept of Limited Liability- The concept of limited liability is an important factor for ensuring that personal assets
or properties of owner of the business are not at stake to cover debt or liabilities of the business. For example in a sole
proprietorship ownership form businessman do not have limited liability and if someone sues his/her business their
own properties of assets like car, house, and money etc. are at stake. In a Company ownership form businessmen do
have limited liability and his/her personal assets are not at stake.
Burden of Paying Taxes- Some forms of business ownership are taxed more than others as the individual owner is
separate from business organisation. To illustrate, Company form of business organization are subject to double
taxation i.e. the business and shareholders pay their tax individually for same business income.

A Possibility of Raising Capital- For certain business structures it is not difficult to raise money considering other
business structures. For example, in a company form of business organization the capital can be raised by issuing
shares to the public and required arrangement of money can be made. However whenever company is issuing shares
to the public they are selling a portion of ownership to the buyer of shares.
Licenses and Permits- The complexities involved in setting up or initiating business is different from one form of
business organization to other form of business organization. A Company form ofbusiness organisation for example
needs more paperwork and is more expensive to set up than asole proprietorship.
Other issues in selecting forms of business

Nature of business
Areas of operations
Management
Liability
Degree of control
Capital requirements
Govt. regulations
Extent of risk liability
SOLE PROPRIETORSHIP
Meaning:
When the ownership and management of business are in control of one individual, it is known as sole proprietorship or sole
trader-ship. In every country, every state, every locality Sole Proprietorship id seen everywhere. For example, the shops or
stores which one see in his/her locality i.e. the vegetable store, the sweets shop, the grocery store, the chemist shop, the
paanwala, the stationery store, the STD/ISD telephone booths etc. come under sole proprietorship. It is not necessary that a
sole trader-ship business must be a small one but, it is also possible that the volume of activities of such a business unit may
be quite widespread or large. In general, since such business is owned and managed by one single individual, often the size of
business remains small.
Characteristics:
1. Ownership of Business: One single individual got legal title to the assets and properties of the business and the
business enterprise is owned by the individual. The sole proprietor bears the entire risk or loss of the firm and entire profit
arising out of business goes to the owner.
2. Managing the Business Activities: The sole proprietor is the sole decision maker for managing all the aspects of
business. As the manager of the business is the owner of the enterprise he enjoys absolute right to plan for the business and
execute them without any interference from anywhere or from any person.
3. Supply of Capital: The entire capital requirement of the business is endow with the owner and if required in addition
to his own capital he may raise more funds from outside through loans from banks or other financial institutions and through
borrowings from close relatives or friends.
4. Lawful Standing: The proprietor and the business enterprise are one and the same in the eyes of law and enjoy no
separate legal existence. The business assets and the private assets of the sole proprietor are same. The business comes to an
ends in the absence of the owner.
5. Unlimited Liability: So far as the liability of sole proprietor is concerned he carries entire responsibility of business
and hence the liability is unlimited. Personal property of the sole proprietor can be used to meet liabilities in case he fails to
pay for the business obligations and debts arising out of business activities.
6. Stability of the Business: The capacity, competence and the life span of the proprietor determine the stability and
continuity of the sole proprietor business.
7. Legal Formalities Involved: No legal formalities need to be followed in setting up, functioning and dissolution of a
sole proprietorship business. Only for setting up a particular type of business few legal restrictions may be there and needs to
be followed. For example, for opening a chemist shop, the individual must have a license from the Government; to open a
restaurant, the sole proprietor needs a license from the local municipal authority.
Advantages of Sole Proprietorship:

1. Easy Formation: The major advantage of a sole Proprietorship form of business is no formalities or uncomplicated
formalities needed. Any person who wishes to start such a business can easily do so in many cases without any legal formalities.
2. Flexibility in Operations: To bring changes in any process or system of business the owner can do it as many times
as required as he is not required to take permission or approval others. One man ownership and control makes it possible for
change in operations to be brought about as and when necessary. In addition to this, the owner is not required to submit the
results of the business to the prescribed authorities.
3. Maintenance of Business Secrets: The owner of a sole proprietorship business enjoy another important advantage,
that is, he is in a position to maintain absolute secrecy regarding his business activities as he is not expected to report about
performance of his business.
4. Better Control on Business: Since the Sole Proprietor has all authority in formulating plans, in organizing and
coordinating various activities he as an owner has full control over his business. He develops and implements effective control
mechanisms.
5. Prompt Decision Making: Quick and timely decision making becomes possible as the sole trader takes all the
decisions himself which enables the owner to take care of or grab available opportunities immediately and also help in
identifying and formulating immediate solutions to problems.
6. Direct Incentive: The owner can easily see the incentives available to him for carrying risk of doing business.
Therefore, owner is directly motivated to put his best efforts as he alone is the beneficiary of the profits earned. The sole trader
is the only person to whom the profits belong. This always acts as a stimulant to personal incentive.
7. Better Care of Consumer Needs: Personal Attention to Consumer Needs is possible for sole proprietor. One
generally finds the sole proprietor taking personal care of consumer needs as he normally functions within a small geographical
area. Due to the limited scope of business the customer care is facilitated.
8. Employment Opportunities: The Sole Proprietor form of business promotes and motivates entrepreneurial skill
among the individuals. A sole Proprietorship form of business facilitates self employment and also generates employment for
many others.
9. Social Benefits: As the sole proprietor is the master of his own business; enjoy absolute freedom in taking decisions,
he can use his skill and capabilities for maintaining and developing his/her business.
Through this he is able to satisfy his high self-esteem needs and able to earn self-respect in the society. Such process will
gradually help him in acquiring several social qualities like self-determination, self- reliance, independent thought, initiative,
action, hard work etc,. Thus, he sets an example or become a benchmark for others to follow.
10. Distribution of Wealth in Society: A sole proprietorship form of business is generally in the form of a small scale
business, there is opportunity for many individuals to own and manage small business units. Hence, it leads to widespread
dispersion of economic wealth and diffuses concentration of business in the hands of a few capitalists.
Disadvantages of Sole Proprietorship:
1. Unlimited Liability: All the liabilities of business are recovered from the personal assets of the owner as the owner
and firm are not different in sole proprietorship form of business. This unlimited liability aspect of business restricts the sole
trader to take more risk and increases the volume of his business.
2. Limited Capital/Financial Resources: For the growth of sole proprietorship the inadequacy of finance is a major
handicap. The ability to raise and borrow money by one individual is always limited hence such business remains as a small
scale business.
3. Limited Capacity of Individual: As one individual is responsible for managing business this form of business
organization face several limitations such as an individual has limited knowledge and skill; his capacity to undertake
responsibilities is restricted by his limited knowledge and skills; his capacity to manage and take decisions in all the areas of
business is restricted, and his capacity to take or to bear the risks of business are also limited.
4. Uncertainty of Duration: The life of the proprietor and the existence of a sole trader-ship are linked together. The
illness, death or insolvency or bankruptcy of the owner brings an end to the business. The continuity of business operation is,
therefore, uncertain as it is closely related with existence of owner.
Suitability of Sole Proprietorship:

Sole proprietorship business is suitable where the scope of business is not wide. It is suitable where the market is localized,
limited; where customers give importance to personal attention given by the trader to customers; where the nature of business
is simple and requires quick decision; and where capital required is small and risk involvement is not heavy. It is also considered
suitable for the production of goods which involve manual skill e.g. handicrafts, filigree works, jewellery, tailoring, haircutting,
etc.

PARTNERSHIP
Where two or more persons are associated to run a business with a view to earn profit is called partnership form of organization.
Persons from similar background or persons of different aptitude and skills, may join together to carry on a business known as
partnership firm. Each member of such a group is individually known as ‘partner’ and collectively the members are known as
a ‘partnership firm’. These firms are governed by the Indian Partnership Act, 1932.
In India there is Limited Liability Partnership Act of 2008 in which the liability of partners are limited but, till date it does not
have a widespread use in the form of business organization.
Characteristics:
1. Restriction for Number of Partners: There is restriction to minimum and maximum number of members in partnership
firms. To start a partnership business minimum of two persons are required and the maximum membership limit is 10 in
case of banking business and 20 in case of all other types of business.
2. Contractual Relationship between Partners: The relationship between the partners of a partnership firm is created by
contract. When the partners enter into partnership firm through an agreement which may be verbal, written or implied the
firm come in to existence. If the partners enter in to a written agreement it is known as a ‘Partnership Deed’ which governs
the operation of all the business activities.
3. Competence of Partners: In partnership form of business organization the individuals have to enter into a contract to
become partners, and therefore, they must be competent enough to do so.
Thus, minors, insolvent persons and lunatics are not eligible to become partners. However, a minor can be admitted to the
benefits of partnership i.e. he can have a share in the profits with consensuses of all the partners.
4. Sharing of Profit and Loss: The partners can share profit of partnership firm in any ratio as per the agreement i.e. as agreed
in their ‘Partnership Deed’. But, in the absence of an agreement, partners can share the profits equally.
5. Unlimited Liability: The partners of the partnership firms have unlimited liability. Partners are liable jointly and severally
for the debts and obligations of the partnership firm. The creditors of the partnership firm can put down their claim on the
personal properties of any individual partner or all the partners jointly.
In many cases even a single partner may be called upon to pay the debts of the firm. Of course, he can get back the money due
from other partners. In case of dissolution of a firm the liability of minor is, however, limited to the extent of his share in the
profits.
6. Relationship of Principal-Agent among Partners: The business activities of a partnership firm may be carried on by all
the partners together or any one of them acting for all the partners. It means there is dual relationship between partners i.e.
every partner is an agent when he is acting on behalf of others and he is a principal when others act on his behalf. It is,
therefore, essential that there should be mutual trust and faith among the partners in the interest of the firm.
7. Transfer of Interest: Without the consent of other partners no partner can sell or transfer his interest in the firm to anyone
or any other partner. The partner can give his interest to others with the consent of all the partners.
8. Legal Status: The partnership firm means partners and the partners mean the partnership firm. A partnership firm is just a
name for the business as a whole. In the eyes of Law partnership firm does not enjoy separate recognition i.e. the firm does
not enjoy a separate entity distinct from the partners.
9. Voluntary Registration: Registration of partnership firm is voluntary and not compulsory. But registration of the
partnership firm gives the rights to enjoy several benefits, and hence, it is considerably desirable to register the partnership
firm. For example, if it is registered, any partner can file a case against other partners, or an outside firm and outsiders can
file a suit against partnership firm in case of any disputes, disagreements claims, etc.
10. Dissolution/Closure of Partnership Firm: Dissolution/Closure of partnership implies two aspects.
First, it shows complete closure or termination of partnership business, and second it also shows any change in the existing
agreement among the partners due to a change in the number of partners or changes in the conditions of the agreement.
Advantages of Partnership Firm:

1. Easy Formation: As there is no need for every partnership firm to register it can be formed without many legal
formalities and with less expenditure. Even if partners would like to register their firm the expenditure is restricted to only
developing an agreement. Even the registration of a partnership is not compulsory. All that is required is an agreement among
the partners, stating the terms and conditions of business. It is not even compulsory to have this agreement in writing. It is,
however, advantageous to get the partnership registered and have a written agreement.

2. Larger Financial Resources: A partnership firm can pool larger financial resources as compared to sole
proprietorship because it has more number of partners to contribute to meet financial requirement of partnership firm and
further these partners may raise more funds from outside through loans from banks or other financial institutions and through
borrowings from close relatives or friends. Thus it can enter into bigger operations and can have more credit facilities.
3. Flexibility in Operation: Due to a limited number of partners change in operations of the firm and amendment
objectives if necessary can be easily done by mutual consent of all the partners. So there is flexibility to make changes in
operation in partnership business.
4. Better Management: Partners often meet to discuss the affairs of business and can take prompt decision by their
mutual consent. As there is a direct relationship between ownership, control and profit partners take more interest in the affairs
of business and operate the business smoothly.
5. Sharing of Risk: In partnership, in case of probability of risk of loss or actual loss in business partners can easily
share it and one individual is not accountable for such loss like sole proprietor bear entire loss.
6. Protection of Minority Interest: In partnership firm every partner has an equal right to contribute or say in decision
making which affect firm’s operation. If any decision adversely affects interests of a partner he can prevent a decision being
taken and in extreme cases a dissenting partner may withdraw from partnership and can dissolve the partnership firm.
7. Better Public Relations: In a partnership firm the group consists of small number of partners who manage the affairs
of the firm which facilitates cordial relationship with the public. Compared to company form of business the better cordial
relation with the public is possible.
8. Diversification of Management: A partnership firm permits diversification of management through division of
labour and specialization on the part of the owner. In big partnership firms, one often finds one partner handling production
problems, another in-charge of sales and finance, and so on.
The distribution of duties and responsibilities promotes specialization and each partner performs those functions for which
he/she is best qualified.
Disadvantages of Partnership Firm:
1. Instability of Firm: Like Sole Proprietorship the death, insolvency or lunacy of a partner may bring about an
unexpected end to partnership. It means partnership firm does not continue to exist indefinitely but its existence depends upon
existence of all the partners. Further, the partnership business can be brought to a close if any partner demands its termination
for any reason.
2. Unlimited Liability of Partners: In partnership firm there is joint and several liability of partners to an unlimited
extent, and therefore, any one of the partners can be called upon to pay all the debts even from his personal properties. Every
partner has a right to take part in the management of the partnership firm and any wrong decision by a single partner commit
the resources of the firm which may lead to heavy liabilities for others. This discourages many persons, with money and ability,
to accept membership of a partnership firm.
3. Lack of Harmony: There are greater possibilities of resistance and quarrel among the partners as every partner has
equal right and voice in the firm’s operation leads to differences of opinion.
Differences of opinion may lead to mistrust and disharmony which may ultimately result in disruption and closure of the firm.
Lack of centralized authority and conflicts in policy can disrupt the organization.
4. Limited Capital: The capital which can be raised for partnership firm is limited as there is a restriction on the
maximum number of partners i.e., 10 in case of banking business and 20 in case of all other types of business. A partnership is
good insofar it can be started with limited capital.
However, it becomes a handicap in the growth and expansion phases of the business. There is a limit beyond which it is almost
impossible for partners to collect capital. This limit is generally up to the personal properties of partners.
5. Lack of Public Confidence: As there is no legal mechanism to enforce the registration of a partnership firm and the
disclosure of its affairs it may suffer from lack of public confidence. In case of mismanagement in company form of business
the Central Government has the absolute powers to order investigation of company affairs. This is almost totally lacking in
case of a partnership and hence general public is reluctant to deal with a partnership firm, both in financial and other matters.
6. Difficulty in Withdrawing Investment: Investing in a partnership firm is simple but its withdrawal may be difficult
or costly aspect when this aspect is considered from the point of view of individual partners. This is because no partner can
withdraw his interest from the firm without the consent of all partners.
Suitability of Partnership Firm:

In a partnership firm, persons possessing different background; having different experience of life; having varied abilities,
managerial talent and skill join together to carry on a business. Members from varied background add to the administrative

strength of the organization; the financial resources, the skill and expertise, and reduce risk attached with operation of business.
Such firms are most suitable for comparatively small business such as mercantile houses and small manufacturing units, retail
and wholesale trade, professional services etc. in reality it has been observed that initially many organizations are started as
partnership firms and later, when it is economically viable and financially attractive for the investors, it is converted into a
company form of business organisation.
COMPANY (JOINT STOCK COMPANY)

Meaning:
Joint Stock Company form of business organisation is given a legal status; is subject to certain legal regulations; is a voluntary
association of persons to carry on business. Joint Stock Company is an association of persons who generally contribute money
for some common purpose and such contribution is called the capital of the company. The persons who contribute capital are
its members of Joint Stock Company. Every member contribute money as per their own ability and desire and the proportion
of capital to which each member isentitled is called his share, therefore members of a joint stock company are known as
shareholders and the capital of the company is known as share capital. The total share capital is divided into a number of units
known as ‘shares’. One may have heard of the names of joint stock companies like Birla
Group of Companies,
Reliance Industries Limited, Tata Iron & Steel Co. Limited, Hindustan Lever Limited, Larson &TubroSteel Authority of India
Limited, Balsara, Ponds India Limited etc. The companies are governed by the Indian Companies Act, 1956. The Act defines
a company as an artificial person created by law, having separate entity, with perpetual succession and a common seal.
Characteristics:
1. Artificial Person: A Joint Stock Company is created by law and does not possess physical attributes of a natural
person and therefore called as an artificial person. However, it has a separate legal status and it can sue or can be sued by any
person.
2. Separate Legal Entity: The major advantage is that being an artificial person, a company has an existence
independent of its members. Joint Stock Company can own property, enter into contract and conduct any lawful business in its
own name and can sue and can be sued in the court of law.
A shareholder cannot be held responsible for the acts of the company like sole proprietorship or partnership firms.
3. Common Seal: As Joint Stock Company is created by law and does not possess physical attributes of a natural person every
company has a common seal by which it is represented while dealing with outsiders and all its stakeholders. Company is
responsible for use the company seal. Any document with the common seal and duly signed by an officer of the company is
binding on the company.
4. Perpetual Existence: A Joint Stock Company is created by law and its survival is not affected by the death, lunacy,
insolvency or retirement of any of its members. Company once formed continues to exist as long as it fulfills the requirements
of law. The owner of the firm may change due to transfer of ownership of shares to others but it does not affect existence of
the company.
5. Limited Liability: In case of payment of debts by the company, a shareholder is held liable only to the extent of the face
value of share. The liability of a member of a Joint Stock Company is limited by guarantee or the shares he owns and his
personal property are not at stake for payment of company’s liability.
6. Transferability of Shares: The members/shareholders of a company are free to transfer the shares held by them to anyone
else and there is no restriction to own shares.
7. Formation: When company has been registered by completing the formalities prescribed under the
Indian Companies Act 1956 it comes into existence. A company is formed by the initiative of a group of persons known as
promoters who complete all the legal formalities and submit required documents to the Registrar of the Companies in their
respective territories.
8. Membership: There is difference between number of members for Private Limited Company and Public Limited Company.
For Private Limited Company there should be minimum two persons as a member and maximum limit is fifty members
excluding present employees as members and ex-employees as members. But in case of a Public Limited Company, the
minimum is seven and the maximum membership is unlimited.
9. Number of Directors: In case of Public Limited Company there should be minimum 03 board of director & maximum 12,
and there is provision for appointing more number of directors provided permission is taken from central Government for
the same. In case of Private Limited Company minimum 02 directors and for maximum number of directors there is no limit.
10. Management: Joint Stock Companies follow the democratic management and control where only elected directors
manage the business. In other words, the company is managed by the elected representatives of shareholders known as

Directors. Even though the shareholders are the owners of the company, all of them cannot participate in the management
process.
11. Raising of Capital: A Joint Stock Company generally raises a large amount of capital through issue of shares to public
at large. Company can collect required finance through issue of different types of shares such as Equity Shares, Preference
Shares, and Debentures. Company can also collect deposits from public to meet the financial requirement.
Advantages of Joint Stock Company:
1. Limited Liability: The liability of members in a Joint Stock Company is limited to the extent of face value of shares
held by them. Such limited liability concept helps the company to raise huge capital by attracting a large number of small
investors to invest in the company.
The risk talking ability of company is more due to limited liability of its members and their personal properties are not at stake
in case of inability of company to meet its debt repayment.
2. Continuity of Existence: Company has a perpetual existence as company is an artificial person; created by law and
possesses independent legal status; and its survival is not affected by the death, insolvency etc. of its members. The stability of
company organization permits it to undertake projects of long duration, and also offers a great attraction to the creditors and
investors to put their resources in the business.
3. Benefits of Large Scale Operation: It is only the company form of organisation which can provide huge capital for
large scale operations and it further leads to increase in efficiency and reduction in the cost of operation through large scale
production. It further opens the scope for expansion of business.
4. Professional/Efficient Management: Due to complex nature of activities and operations and large volume of
business, the Company form of business requires professional managers at every level of organization to handle such
complexities. The company’s financial strength permits them or can afford to appoint such professional managers.
Professional managers are able to show better business results by adapting themselves to newer, better, unconventional, and
even more risky methods of organization and management. The dynamism and adventurism on the part of professional
managers is possible because they are trained that way and also because they do not have much financial stake in the company.
5. Social Benefit: A joint stock company provides many benefits to society such as it offers employment to a large
number of people; it facilitates promotion of various ancillary industries, trade and auxiliaries to trade. Sometimes donation
come in the form of money and various facilities from various industries for education, health, community service and also
renders help to charitable and social institutions.
6. Research and Development: Considering their specialization different companies company generally invests a lot of
money on research and development for designing and innovating new products for satisfying needs of people in a better ways;
for improving processes of production, for improving quality of product, and identify new ways of training its staff, etc.
7. Public Confidence: A company organization greatly enjoys the confidence and trust of public as the affairs of
company are open to public and not secrete. A company is under statutory obligation to make its activities and open for public
through accounts and annual reports. Progressive and enlightened managements even voluntarily disclose to the public its
activities in wider dimensions than what is required under the law. Such confidence of public helps in raising additional capital,
selling its products and undertaking growth and expansion programs.
Disadvantages of Joint Stock Company:
1. Formation is Complex: The formation of a company involves preparation of many documents (like Memorandum of
Association, Articles of Association and Prospectus) in order to ensure compliance with a number of legal formalities under
the companies Act of 1956 and compliance with several other Laws. Such compliance with many legal formalities make the
task of starting a company more complex compared to sole proprietorship or partnership business. These legal formalities are
not only time consuming but also costly and even it does not end with formation of a company, but extend to the operation
stage of business.
2. Control by a Group: Companies are controlled by a group of elected persons known as the Board of Directors.
Directors and paid officials are not as sincere and honest in managing company affairs as owners would be.
In practice it has been observed that company’s directors are not in a position to control the organizational activities properly,
may be due to lack of interest on the part of the shareholders who are widely dispersed; ignorance, indifference and lack of
proper and timely information about operation of the company. Thus, the democratic virtues of a company do not really exist
in practice.
3. Speculation on Company’s Shares: The value or price of a share is determined in terms of the dividend expected
and the reputation of the company and the shares of a company are bought and sold in the stock exchanges. These values of
the shares can be manipulated and there exists excessive speculation in the stock market about shares of the companies which
is regarded as a social evil.

4. Excessive Government Control: Smooth functioning of the companies is affected by heavy penalty imposed by the
Government for Non-compliance with the provisions of several Acts enacted by Government from time to time. A company
has to file regular returns and periodical statements of income as each and every activity of company is regulated by annoying
legal provisions. The result of all these is that either competent and dynamic entrepreneurs have to spend a lot of their precious
time in complying with theses legal formalities or they have to spend lot of money in creating a separate position or department
for this purpose.
5. Delay in Policy Decisions Making and Implementing: As per Companies Act of 1956 and many other Laws,
company has to fulfill certain procedural formalities before making any policy decision. These formalities consume more time
and, therefore, policy decisions may be delayed which many affect the performance of business. Decisions are not taken by
one person alone but through the committee of directors and it cause delays because of the time interval between meetings and
difficulty of getting requisite quorum. Implementation is also delayed because instructions are to pass through several levels in
the line of command from top to middle to operating management.
6. Social Abuses: Company operating as a large scale business organization possesses huge resources, which in turn
provides lot of power to them. Company holds power over certain community in terms of supply of required products and
services, providing employment to various sections of society etc. Any misuse of such power creates unhealthy conditions in
the society e.g. having monopoly of a particular business, industry or product; exploiting workers, consumers and investors;
influencing politicians and Government in getting their work done etc.
7. Conflict of Interest: Unlike the sole proprietorship or partnership where the interest of proprietor or partners is
dominant, a company organization displays a sense of conflicting interests among those who deal with it. The interests of
preference shareholders is for more reserves come in conflict with equity shareholders who are interested in more dividends
and interest of directors and managers in more remuneration and full control over company affairs. The continuous warfare
between different groups of people destroys the unity of purpose and makes difficult to realize organizational objectives.
8. Corruption of Political System: In many democratic countries of the world, it is found that a big company tries to
corrupt or destabilize political system to harvest short-term personal gains. This is done by making unofficial, illegal financial
contributions to political parties, supporting political candidates in elections and other similar practices.
Suitability of Company:
A joint stock company form of business organisation is suitable in certain situations where the volume of business is quite
large; where the area of operation is widespread; where the risk involved is heavy; where there is a need for huge financial
resources and manpower. It is also preferred when there is need for professional management and flexibility of operations. In
certain businesses like banking and insurance, business can only be undertaken by joint stock companies. The company
organization is most suitable is for larger businesses. For small business this form is too burdensome and may be too expensive.
The company form of business organization is found in large-sized manufacturing, trading, and service activities as such
organization need huge amount of capital outlay in fixed and other assets which can be collected by an entrepreneur by the
company form of organization. For example, large construction plants; fabricating plants and various trading enterprises like
big departmental and chain stores and services organizations like big transportation and engineering firms are also organized
in the form of companies.
FRANCHISING
Meaning:
Franchising is not a separate form of business organisation but it is the business arrangement and it may be a sole proprietorship
or partnership or company. Over the past few years franchise contract is becoming more and more popular. With the growth
of service sector the opportunities in India for franchising are going to be multiplied. As per the study by Anderson Consulting,
franchising inn India accounts for 4 per cent of the Nation Gross Domestic Product. In US the global franchise economy
accounts for 17 per cent of the world’s business. The franchising in India is growing in various sectors like, Food, Healthcare,
Education, and Entertainment etc. over and above the traditional franchising business like petrol, auto dealers and soft drink
bottles the rapid expanding industries for franchising is training, education, and recreation and leisure activities. The franchising
would be catalyst to give a forward push to entrepreneurship. The word franchising comes from the French word “franchir”
which means “to free”. It originally meant “to free from slavery”.
Today the franchise is an agreement between a buyer (franchisee) and a seller (franchisor).
“Franchising is the transfer of rights to sell a trademarked product or service through a system prescribed by a franchisor (seller
of right) who owns the trademark. Franchising is a business arrangement in which the owner of a trade mark, trade name, or
copy right has licensed others to use it in selling goods or services.

It can be sole proprietorship, partnership or company form. Franchise also means expanding the business in the new market by
transferring trademark and goodwill to franchisee by charging fees. In general it can be said that Franchise is a local
representative of any organization who markets and conducts the entire marketing activity under complete guideline and
support of franchisor in the area allotted to the franchisee. It is a kind of authorization granted to an individual or corporation
by a franchisor to sell its goods or services in a defined way. Franchise is a system of distribution through which the owner of
product approaches independent businessmen in selected territories, appoint them as sole franchisee for particular areas and
encourage them to distribute the product within the area assigned. The owner called as franchisor retains control over the
technique or style with which the product is merchandised. The franchisees are given certain areas and as per the contract the
franchisees are expected to promote the sale in a specific manner. The franchisor provides equipment, gives his brand name,
undertakes publicity, provide managerial and technical assistance. The franchisee has to adopt selling techniques and see that
maximum sale is promoted through his local network.
Characteristics of Good Franchise:
1. Consistency: The franchised business must lend itself to replication i.e. consistent in providing goods and services
similarly. It should offer the same goods or services in the same way by using the same financial, marketing and accounting
systems. This is not a matter of each outlet being broadly similar to every other but it should be as near as possible in terms of
identical offers made by them.
It should use the same brand, logo and image for all of its business outlets. Take McDonald for example, arguably the most
public face of franchising, not just in this country, but across the world.
2. Unique Offer: Unique offer is the main heart of all franchise business and franchisor’s marketing efforts. It assumes
an ideal, some special quality that marks out a product or service different from all the competition and the same cannot be
imitated. Such unique selling propositions must have the unique difference in relation to offers made by rivals. Often this
difference is expressed in branding in terms of bundle of qualities comprising name, logo, colour, reputation, recognition and
reputation that is the unique property of one franchisor and no any other franchisor. But behind the brand it delivers up to
customer expectation i.e. for a brand to have value it must be associated in the customer’s mind with quality, service, reliability
and predictability.
3. Ease of Operation: The operation of franchise business is simple and can be taught easily to franchisee. Every method
or skill taught by a franchise should be quite easy to learn. Though every reputable franchise offers training to new recruits, in
practice the quality and duration of the induction process vary quite widely, and franchisor should investigate how thoroughly
franchisee will be trained in the processes of running a new business. What franchising can do better than any other way of
running a business is to take people from a wide variety of backgrounds and with varying experience, skills and abilities and
train them to do something quite different from what they have done in the past.
4. Reward Based on Margin on Sales: The franchised outlet is like a hard-working business unit who work to support
demanding franchisor. Both the franchisee and the franchisor are interested in earning a share of the profits for their efforts.
This is because franchisee and franchisor put in their money; they applied themselves diligently during the training process;
and, most importantly, they continue to strive daily to make their franchise a success. The reward will be growing businesses
that are measurable in terms of Gross Margin on Sales. And after all franchisor and franchisor are in business to make money
through more margins on sales.
5. Risk Aversion: Many people think that to succeed as a franchisee, they need to be a gambler but it is not true.
Successful franchisees are risk averse. They are willing to take some risk but want that risk to be as small and controlled as
possible. Any business start-up involves some risk of failure, but a strong franchise with a proven track record of success will
minimize this risk. Successful franchisees do their homework, so they know what they’re getting into.
Advantages of Franchising:
1. Financial Gains/Assistance: Another source of income for the franchisor is created by Franchising. It is through payment
of franchise fees, royalty & levies in addition to the possibility of sourcing private label products to franchisees. It improve
cash flow, a higher return on investment and higher profits and provide other financial benefits that the franchisor enjoys
such as reduced operating, distribution and advertising costs.
The franchisor may also be able to help the new owner to secure the financial assistance necessary for running the operation.
In many cases it was observed that some franchisors have helped the franchisee to get started by lending money and not
requiring any repayment until the operation is running smoothly.
2. Operational Control: Compared to developing and owning locations and searching the kind of business at their own,
franchisor can have a smaller central organization. Franchisee work hard to bring in better organizational and monetary
results as franchisee is usually self motivated and he has invested much time and money in the business, which means.
Franchising ensures standardization of events/procedures, which reproduces effective quality control, consistency, better
quality and enhanced productivity levels. This also reflects on more satisfied customers and improved sales effectiveness.

If franchisor believes that it is critical for each unit’s success as well as that of the system as a whole that each unit follow
recommended marketing and operational guidelines, franchising provides one of the strongest methods of achieving that
objective.
3. Training and Guidance: The franchisor will usually provide both training and guidance to the franchisee and as a result,
the likelihood of success is much greater for national franchisees who have received this assistance.
4. Cost Effective Administration: The franchise business maintains a more cost effective labour force, reduction of turnover
of important staff and can make more effective recruitment with a smaller central organization.
5. Strategic: So far as the franchisor is concerned, franchising means multiplying the number of locations through other
people’s investment which help them in spreading risks. Through franchise the better opportunity could be focused with
changes in the market which leads to faster network expansion and reduced entry of competitors.
6. Ownership Mentality: Where the franchise agreement is long-term Franchisee will have an attitude of being a business
owner and is more likely to devote attention, capital and time, to grow the business, and follows the approved system and
willing to face from occasional business challenges.
7. Image: Considering other distribution approaches franchise systems generally have a superior image over both among
prospective owners and with the consuming public. This is because there is uniformity as to retail presentation, marketing
methodology, compliance with operational aspects, and one can see very precisely that these things are easier to achieve
within a franchise framework.
8. Brand-Name Appeal: Person who buys a well-known national franchise has a good chance to succeed as the franchisor’s
name is an earning card for the franchisee. This is because people are more aware of the product or service offered by a
national franchise and preferred it to those offered by outlets which are not known.
9. Franchisee Participation and Support: The well managed franchise model often incorporates valuable Franchisee input
and creative participation by Franchisees as all of the participants are part of a single franchise system with a common
identity. Franchisees are more likely to participate in initiatives for the proper operation of the entire enterprise; expansion;
sometimes producing new ideas. Franchisees also help in alerting the Franchisor to operational non-compliance problems
created by other Franchisees in the systems.
10. System-wide Marketing Support Paid by Franchisees: Franchisees are required to contribute to advertisements;
promotions; public Relations; participate in local marketing; supporting retail marketing and contributing in a national
marketing fund, as a part of franchise systems. Such an ability of franchise system to pool the advertising money produces
obvious competitive advantages which help in raising barriers to entry by potential competitors as well as in leveraging an
already leading position in the industry.
11. Reduce Trial and Error Period for Initiating and Operating Business: Franchising business arrangements help in
avoiding the unnecessary trial and error period in starting and operating a new business. Franchisee starts his business
operation by making agreement with franchisor and use the name and/or process of well established brands and image of
franchisor.
12. Verified Track Record: Franchisor has already proved the business as a successful operation.
It is not difficult to see how successful the operations have been when organization has been around for five to ten years in
business and has large number of units in operation. Franchisor has proved that the location and layout of the franchisees store,
the pricing policy, quality of goods and services, and the overall management system are successful.
Disadvantages of Franchising:
1. Franchise Fees/Higher Legal Expenses: The larger and successful franchisor, the franchisee needs to pay higher
franchise fees. Typically, franchise buyer pays an initial franchise fee, spends own money to build a store, buy the equipment
and for inventory, and then pays a continuously royalty based sales. The necessity of preparing franchising agreements;
preparation of related documents and agreements, and filing them in various authorities represents a significant expense,
although the year-to-year expenses are generally less than those initially incurred in setting up the structure and related
documents. Additional legal costs will be incurred if company form of business is used to get the advantage of a separate legal
entity is used for the franchising program.
2. Control Issues: As with dealerships, there may be quality control and related issues in franchise operations. To what
extent the franchisees follow the established standards in terms of product, service or process of operation remain a major
concern for franchisor. The franchisor generally exercises a fair amount of control over the operation in order to achieve a
degree of uniformity. If entrepreneur do not follow franchisor directions, they may not have their franchise license renewed
when the contract expires.
3. Business Relationship Issues: To some degree in the development and possible success of the franchise system
franchisees typically view themselves as partners with the franchisor. A Franchisor must be psychologically comfortable

working with Franchisees in terms of charting strategic directions, implementing marketing plans, etc. If properly managed, a
sense of team participation can benefit the entire system.
4. Potential for Loss of Freedom: When a Franchisor hunt for expansion through alternative channels of distribution
the act of awarding exclusive territories to franchisees may generate legal and other problems if enough care is not taken.
Appropriate provisions in the franchise agreement; proper education of franchisees, and management of expectations of
franchisees, can largely help in avoiding these issues.
5. Finding Qualified Franchisees: An important aspect is, since the franchise relationship is long term finding and
educating good franchisees is vital. The key qualification of the ideal franchisee combines entrepreneurial energy with the
willingness to follow systems of franchisor and act as a team player.
Q: Discuss the different legal framework that should be known and understand by an entrepreneur.
LEGAL FRAMEWORK
An entrepreneur should be aware of various legal aspects for setting up and running of a small business. The knowledge
about the legal framework helps an entrepreneur in running business successfully. Some of the legal considerations are as
follows:
1. Intellectual Property: Any resource which gives a trade a commercial advantage is called Intellectual Property. The
resources may be a formula, data, compounds, new processes, compiled information, list of customers etc. The Intellectual
Property laws in India have been implemented following WTO’s agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS).
The Intellectual Property laws cover the following:
A. Trademark: A trademark is a distinguishing word, figure, symbol, design, numeral or a combination of these that
identify particular goods or services. The current trade Mark Act, 1999, which replaced the Trade Mark Act, 1958 has been
developed in light of TRIPS obligations. The trademark has to be registered with a Trade mark Registry, working under the
Registrar of Trade Marks. The head office of the Trade mark Registry is at Mumbai and its branches are at Delhi, Kolkata,
Chennai and Ahmadabad. The trademark can be filed for registration with the Trade mark Registry. Prior use of trademark is
not required for filing an application. Before applying for registration of a trademark, an applicant can go for a paid search at
the registrar’s office to browse through their records to check out whether or not this particular trademark has been registered
earlier.
The trademark gives the proprietor the exclusive right to use the trademark in relation to the goods or services for which it
was registered. Trademarks can also be transferred with or without transmitting the goodwill of the business. The trademarks
can be established in the market through brand building activities.
B. Copyright: The copyright laws protect the legal rights of a person for his or her work of writing or authorship. This
law prevents others from reproducing the work in any other way. The intellectual property under copy right include:
Literary work (books, articles, manuscripts etc.)
Dramatic work (drama, dance choreography, costumes etc.)
Musical work (lyrics, music, graphical notations etc.) Artistic
work (drawing, painting, sculpture, photographs etc.)
Cinematographic work (recoding, sound tracks, sound effects etc.)
Computer work (programmes, tables, databases etc.)
C. Patents: A patent gives protection to the inventor of a new product/ process/ design to solely use the copying/
selling/ using of the invention for a limited period of time. This right acts as an incentive for the inventors who have worked
hard and created something innovative. The term ‘invention’ is defined as ‘a new product involving an innovative step and
having industrial application’. In India, the rights of patents are granted to the person who first applies.
Anything, for which a patent is desired, should be:
New: patents are not granted for things already well known and well established.
Useful: inventions should be beneficial for people and should be capable of industrial applications.
2. Licensing: Licensing may be defined as a contractual agreement between two parties where one party having some
proprietary rights agrees to transfer its rights to another party by charging some kind of fee or royalty in a proper mode.
Licensing has acquired great importance in today’s global world. There are many examples where a company owning the
intellectual property of a product, manufactures it in its country and gives license to other businessmen in other countries to
manufacture the same product.

3. Contract: A contract is a written document that is enforceable legally. Generally an entrepreneur starting a business
gets into discussions with landlord, suppliers, service providers, buyers and sellers, government authorities, etc. After
finalisation of the discussions, contacts will take place which binds the two parties legally. Broadly, a contract document will
contain the following things:
• Name of parties involved in the contract and their roles.
• Detailed description of transaction taking place between the two parties.
• Specification of contract value in terms of price and charges.
• Signature of competent persons from each of the organization who are party to the contract.
Q: What is the process of registration of an business unit.

REGISTRATION OF BUSINESS OF UNIT
Procedure for registration of a private limited company
• Select, in order of preference, a few suitable names, not less than four, indicative of the main objects of the company.
Ensure that the name does not resemble the name of any other company already registered and also does not violate
the provisions of Emblems and names (prevention of improper use) Act, 1950
• Apply to the concerned ROC to ascertain the availability of name in e-Form1 A of General Rules and Forms along
with a fee of Rs. 500/-. If proposed name is not available apply for a fresh name on the same application the digital
signature of the applicant proposing the company has to be attached in the form.
• After the name approval the applicant can apply for registration of the new company by filing the required forms
(eForms 1, 18,32 ) within six months of name approval.
• Arrange for the drafting of the Memorandum and Articles of Association by the solicitors, vetting of the same by ROC
and printing of the same.
• Arrange for stamping of the Memorandum and Articles with the appropriate stamp duty.
• Get the Memorandum and Articles signed by atleast two subscribers in his own hand, his father's name, occupation,
address and the number of shares subscribed for and witnessed by atleast one person.
• Ensure that the Memorandum and Article is dated on a date after the date of stamping.
• Pay the prescribed registration fee and filing fee.
• The following documents are required to be filed with the Registrar of Companies: o Memorandum of
Association (duly stamped) and a duplicate thereof.
o Articles of Association (duly stamped) and a duplicate thereof.
o The agreement, if any, which the company proposes to enter into with any individual for appointment as its
managing or whole time director or manager.
o A copy of the agreement, if any, referred to in the articles. o A power of attorney, if any (with prescribed
stamps).
o A copy of the letter of the Registrar of Companies intimating the availability of the proper name. o
e-Form No. 1 (with prescribed stamps) for incorporation of a Company. o e-Form No. 18, if
desired for change of situation of registered office.
o e-Form No. 32 and e-Form 32 Addendum, if desired for Particulars of appointment of managing director,
directors, manager and secretary and the changes among them or consent of candidate to act as a managing
director or director or manager or secretary of a company and / or undertaking to take and pay for qualification
shares
o Document evidencing payment of prescribed registration and filing fee.
o The promoters, as being the subscribers to the Memorandum and Articles should be the same person whose
names are appearing in the original application for availability of name (e-Form 1A). If the names have
changed, ROC will not register the company until and unless, the name is got re-validated with the new
subscribers as applicants, by paying another fee of Rs 500.

• Obtain Certificate of Incorporation from ROC. If the registrar is satisfied that all the requirements have been complied
with by the companies, it will register the company and issue a Certificate of Incorporation of the company. The date
mentioned in the certificate is the date of incorporation of the company.
• Under Section 149(7) of the Companies Act, a private company can commence business right from the date of its
incorporation.
Procedure for Registration of a Public Limited Company
A Public Limited Company, in addition to the steps followed by a Private Limited Company has to obtain a certificate of
Commencement of Business before they can commence the business.
To obtain Commencement of Business Certificate after incorporation of the company the public company has to:-
• File a declaration of compliance with the provisions of Section 149(2)(b) of the Act in e Form 20 and attach the
statement in lieu of the prospectus (schedule III)
OR
• File a declaration of compliance with the provisions of Section 149 (1)(a),(b),(c) of the Act in eForm 19 and attach
the prospectus (Schedule II) to it.
Section 149 of the Act, explains the Restrictions on the commencement of Business:-
Where a company having a share capital has issued a prospectus inviting the public to subscribe for its shares, the company
shall not commence any business or exercise any borrowing powers, unless -
(a) shares held subject to the payment of the whole amount thereof in cash have been allotted to an amount not less in the whole
than the minimum subscription;
(b) every director of the company has paid to the company, on each of the shares taken or contracted to be taken by him and
for which he is liable to pay in cash, a proportion equal to the proportion payable on application and allotment on the shares
offered for public subscription;
(c) no money is, or may become, liable to be repaid to applicants for any shares or debentures which have been offered for
public subscription by reason of any failure to apply for, or to obtain, permission for the shares or debentures to be dealt in
on any recognized stock exchange.
149(2)(b):- Where a company having a share capital has not issued a prospectus inviting the public to subscribe for its shares
the company shall not commence any business or exercise any borrowing powers, unless every director of the company has
paid to the company, on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash, a
proportion equal to the proportion payable on application and allotment on the shares payable in cash.
Procedure for Registration of a Partnership Firm
• The law relating to a partnership firm is contained in the Indian Partnership Act, 1932.
• Under Section 58 of the Act, a firm may be registered at any time ( not merely at the time of its formation but
subsequently also ) by filing an application with the Registrar of Firms of the area in which any place of business of
the firm is situated or proposed to be situated.
o Application shall contain:-
name of the firm place or principal place of
business names of any other places where the firm carries on
business.
date on which each partner joined the firm
name in full and permanent address of partners.
duration of the firm
o Application shall be signed and verified by all the partners or their duly authorized agents. o
Application shall be accompanied by prescribed fee as well as the following documents:
Prescribed Registration Form for Incorporation of a Company. (Form No. 1 and Specimen of

Affidavit) certified true copy of the Partnership

deed entered into.
ownership proof of the principal place of business
o Name of the firm should not contain any words which may express or imply the approval or patronage of the
government except where the government has given its written consent for the use of such words as part of
the firms name.
• Under Section 59 of the Act, when the Registrar of Firms is satisfied that the provisions of section 58 have been duly
complied with, he shall record an entry of the statement in the Register of Firms and issue a Certificate of Registration.
• penalty for furnishing false particulars (Section 70)
Any person who signs any statement, amending statement, notice or intimation under this Chapter containing any
particular which he knows to be false or does not believe to be true or containing particulars which he knows to be
incomplete or does not believe to be complete, shall be punishable with imprisonment which may extend to three
months, or with a fine or with both.
• Any alterations, subsequent to Registration shall be notified to the registrar:- o Change in firm name and principal
place of business (Section 60) shall require sending of a new application form along with the prescribed fee, duly
signed and verified by all the partners.
o Change relating to opening and closing of branches. (Section 61)
When a registered firm discontinues business at any place or begins to carry on business at any place, such
place not being its principal place of business, any partner or agent of the firm may send intimation thereof
to the Registrar.
o Change in the name and permanent address of any partner (Section 62)
When any partner in a registered firm alters his name or permanent address, an intimation of the alteration
may be sent by any partner or agent of the firm to the Registrar
o Change in the constitution of the firm and its dissolution [Section 63(1)] when change occurs in the
constitution of the firm, any of the new, continuing or the outgoing partner, while when a registered firm is
dissolved , any person who was a partner immediately before the dissolution or the agent of any such partner
or person specially authorized on his behalf, may give notice of such a change to the Registrar, specifying
the date thereof.
o Under Section 63(2), when a minor who has been admitted to the benefits of partnership in a firm attains
majority and elects to become or not to become a partner, he or his agent specially authorized in this behalf,
may give notice to the Registrar that he has or has not become a partner.
o Accordingly, the various forms prescribed under the Indian Partnership Act, 1932, for the alterations in the
registered partnership firm are:-
a. Form No. II :- For change of principle place of business & change in the name of the firm.
b. Form No. III :- For change of the other then principle

place of business.
c. Form No. IV :- For change of name of the partners & permanent address of the partners.
d. Form No. V :- For change of constitution of forms & addition or retirement of partner.
e. Form No.VI :- For dissolution of the firm
f. Form No. VII :- For minor partner attains the age of majority.
• Partnership Act, 1932 does not provide for compulsory registration of firms. It is optional for partners to set the firm
registered and there are no penalties for non-registration.

However, Section 69 of the Act which deals with the effects of non-registration denies certain rights to an unregistered
firm. Under the Act :- o A partner of an unregistered firm cannot file a suit in any court against the firm or other
partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act unless the
firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.
o No suits to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm
against any third party unless the firm is registered and the persons suing are or have been shown in the
Register of Firms as partners in the firm.
o An unregistered firm or any of its partners cannot claim a set off (i.e. mutual adjustment of debts owned by
the disputant parties to one another) or other proceedings in a dispute with a third party.
Hence, every firm finds it advisable to get itself registered sooner or later.
• However, non-registration of a Partnership firm shall not affect:- o The rights of third parties to sue the firm
and/or its partners.
o The firms or partners in the firms which have no place of business in the territories to which this Act extends,
or whose places of business in the said territories are situated in areas to which the act does not apply.
o any suit or claim or set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not
of a kind specified in Section 19 of the Presidency Small Cause Courts Act, 1882 (15 of 1882), or outside the
Presidency- towns, is not of a kind specified in the Second Schedule to the Provincial small Cause Courts
Act, 1887 (9 of 1887), to any proceeding in execution or other proceeding incidental to or arising from any
such suit or claim.
o the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any
right or power to realise the property of a dissolved firm.
o the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909 (3 of
1909), or the Provincial Insolvency Act, 1920 (5 of 1920), to realise the property of an insolvent partner.
• Rectification of mistakes (Section 64 of the Act) o The Registrar shall have power at all times to rectify any mistake
in order to bring the entry in the Register of Firms relating to any firm into conformity with the documents relating to
that firm filed under this Act.
o On application made by all the parties who have signed any document relating to a firm filed under this Act,
the Registrar may rectify any mistake in such document or in the record or note thereof made in the Register
of Firms.
• Inspection of Register and filed documents (Section 66 of the Act:) o The Register of Firms shall be open to inspection
by any person on payment of such fee as may be prescribed.
o All statements, notices and intimations filed under this Act shall be open to inspection, subject to such
conditions and on payment of such fee as may be prescribed.
• Grant of copies (Section 67 of the Act)
The Registrar shall on application furnish to any person, an payment of such fee as may be prescribed, a copy, certified
under his hand, of any entry or portion thereof in the Register of Firms.
Procedure for Registration of a Cooperative Society under a State Act
• Prescribed application for registration duly filled in shall be made to the Registrar of Cooperative societies.
• the application shall be accompanied by four copies of the proposed Bye-laws of the society;
• Where all the applicants are individuals, the number of applicants shall not be less than ten;
• the application shall be signed by every one of such applicants if the applicants are individuals;
• if the applicant is a society, by a member duly authorised by such society;
The relevant application forms can be obtained from the nearest Office of Registrar of Cooperatives.
Procedure for Registration of a Multi-State Cooperative Society

• An application for registration of a Multi-State Cooperative society shall be made in the prescribed form (Form 1 and
Form 2)
• the application shall be signed by:- o In the case of a multi-state Cooperative society of which all the members are
individuals, by at least fifty persons from each of the states concerned.

o In case the members are Cooperative Societies, by duly authorised representatives on behalf of at least five
such societies as are not registered in the same state;
o In case the members are other Multi-State Cooperative Societies and other Cooperative Societies, by duly
authorised representatives of each of such societies; However, not less than two of the co-operative societies
referred to in this clause, shall be such as are not registered in the same State
o If the members are cooperative societies or multi-state Cooperative societies and individuals, by at least (i)
fifty persons, being individuals from each of the two states or more and; (ii) one Cooperative society each
from two states or more or one Multi-state Cooperative society.
• The application shall be accompanied by:- o four copies of the proposed Bye-laws.of the Multistate cooperative
society.,duly signed by each of the persons who sign the application.
o Name of the proposed multi-state cooperative society. o Head Quarters and address to be registered.
o a list of persons who have contributed to the share capital, together with the amount contributed by each of
them, and the admission fee paid by them.
o Area of operation. o Main objectives
o a certificate from the Bank or banks stating the credit balance in favour of the proposed multistate cooperative
society.
o a scheme showing the details explaining how the working of the multi-State co-operative society will be
economically sound and the registration of such multi-State co-operative society will be beneficial for social
and economic betterment of its members through self-help and mutual aid in accordance with the cooperative
principles.
o certified copy of the resolution of the promoters which shall specify the name and address of one of the
applicants to whom the Central Registrar may address correspondence under the rules before registration and
dispatch or hand over registration documents.
The relevant application forms can be obtained from the nearest Office of Registrar of Cooperatives
IPO
Definition: Initial public offering is the process by which a private company can go public by sale of its stocks to general
public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.
Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can
sell their shares to the public without raising any fresh capital.
Advantages of an IPO for the Company
The IPO is an exciting time for a company. It means it has become successful enough to require much more capital to continue
to grow.
It's often the only way for the company to get enough cash to fund a massive expansion. For the owners, it's finally time to cash
in on all their hard work. They usually award themselves a significant percentage of the stock. They stand to make millions the
day it goes public.
The IPO allows the company to attract top talent because it can offer stock options. It can pay the executives little wages up
front. It promises they can cash out later with the IPO.
Disadvantages of an IPO to the Company
The IPO process requires a lot of work. It can distract the company leaders from their business. That can hurt profits. They also
must hire an investment bank, such as Goldman Sachs or Morgan Stanley. They help the company go through the complexities
of the process. These banks are expensive.
Second, the business owners may not be able to take many shares for themselves. Instead, their original investors might require
them to put all the money back into the enterprise.
Even if they take the shares, they make not be able to sell them for years. They could hurt the stock price if they start selling
large blocks. Investors would see it as a lack of confidence on their parts.
Third, they could lose ownership control of their business. A Board of Directors could even fire them.
Fourth, a public company faces intense scrutiny from regulators. They include the Securities and Exchange Commission and
the Sarbanes-Oxley Act. Many details of the company's business and its owners become public. That could give valuable
information to competitors.


Study Notes: Entrepreneurship Development

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STUDY NOTES

BORA INSTITUTE OF MANAGEMENT

Amit Kumar Dubey (Asst. Prof.) Page 2

Q: Discuss the evolution of the concept of entrepreneur.

Q: Discuss the characteristics of an entrepreneur.

Amit Kumar Dubey (Asst. Prof.) Page 3

11. Business planner

Mc Clelland discuss following qualities or characteristics:

Q: What are the functions that are performed by the entrepreneur?

Amit Kumar Dubey (Asst. Prof.) Page 4

In another way we can group the function of entrepreneur as follows:

(I) Primary functions:-

Amit Kumar Dubey (Asst. Prof.) Page 5

(b) Organizations: - co-coordinators- land, labour and capital.

Q: Discuss in brief the different types of entrepreneurs.

Amit Kumar Dubey (Asst. Prof.) Page 6

Amit Kumar Dubey (Asst. Prof.) Page 7

Q: Differentiate between entrepreneurs and managers.

Entrepreneur Professional Manager

Amit Kumar Dubey (Asst. Prof.) Page 8

Q: Who are Copreneurs and Intrapreneurs?

Q: Differentiate between Intrapreneur & entrepreneur.

Amit Kumar Dubey (Asst. Prof.) Page 9

Q: Discuss in brief about ultrapreneurs.

Q: What is Entrepreneurship? Discuss the characteristics of entrepreneurship.

Amit Kumar Dubey (Asst. Prof.) Page 10

Risk & uncertainty Creativity The action process Leadership

Common Themes in defining entrepreneurship

Entrepreneur Entrepreneurship Enterprise Creation

Individual/Person An Action Process Object

Cantillon’s early view to Entrepreneurial behavior

Amit Kumar Dubey (Asst. Prof.) Page 11

Investment Transformation Profit or Loss

Entrepreneur Entrepreneur Entrepreneur

The Organisation Entrepreneurship The Task

Amit Kumar Dubey (Asst. Prof.) Page 12

Q: Discuss the different traits of entrepreneur.

Amit Kumar Dubey (Asst. Prof.) Page 13

Q: Differentiate between entrepreneur & entrepreneurship.

Q: Discuss the role of entrepreneur in economic growth.

Amit Kumar Dubey (Asst. Prof.) Page 14

ROLE OF ENTREPRENEUR IN ECONOMIC GROWTH

Q: What are the causes of success and failure of entrepreneur?

Amit Kumar Dubey (Asst. Prof.) Page 15

CAUSES OF SUCCESS AND FAILURE OF ENTREPRENEUR

Q: Discuss the barriers of entrepreneurship.

Amit Kumar Dubey (Asst. Prof.) Page 16

Karl H. Vasper has identified following barriers:

Factors affecting Entrepreneurship or barrier to development of Entrepreneurship or problems/ Impediments

Amit Kumar Dubey (Asst. Prof.) Page 17

Economic Factors Non-Economic Factors Govt. action/political Factors

Capital Incentives, Subsidies,

Raw materials Social-Cultural norms and Lack of sustained

Features of Women Entrepreneurs

Amit Kumar Dubey (Asst. Prof.) Page 18

Interior Decoration -Medicare (Medical and Paramedical)

Q: List out the problems faced by women entrepreneur.

Amit Kumar Dubey (Asst. Prof.) Page 19