formalities for setting up small business

7/29/2019 Formalities for Setting Up Small Business

1/37

FormalitiesForSettingUpOfSmallBusinessEnterprises

Unit-3


2/37

Major Forms ofOwnership

Sole Proprietorship Partnership Corporation Franchising


3/37

Sole Proprietorship ASoleProprietorshipisthemostsimple typeofbusinesstostart.

Itbelongstoonlyoneperson.

Theownercanhirehis/herstaffandtakesresponsibilityforallcapitalneeded(likemachinery,startupcostsorrawmaterials).

Theowneralsoacceptsallprofitsanddebtsincurred.

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


4/37

Advantages of the SoleProprietorship

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


5/37

Disadvantages of theSole Proprietorship Unlimited Personal Liability Personally Liable For Any And All DebtsAnd Liabilities Of The Business Limited Skills And Capabilities Feeling Of Isolation Limited Access To Capital Lack Of Continuity


6/37

Partnership

Groupsofpeoplewhoagreetocombinetheircapital,laborandresourcestowardssomecommongoal[usuallyprofit].

Itmayhave2to20members. Attorney to draw up the contract betweenthe partners,thecontractshouldstatewhatcontributionseachmemberhas

made,howtheprofitswillbedividedandmanyotheraspectswithinthepartnership.

Jointlyresponsibilityfordebtsincurredbyothermembers.


7/37

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


8/37

Disadvantages ofthe Partnership Unlimited liability of at least one partner Capital accumulation Difficulty in disposing of partnershipinterest Division of profits Lack of continuity Potential for personality and authority

conflicts


9/37

Corporation/limited

company A company may be private or public limited.

A private limited company can be formed with

minimum of 2 persons and max of 50 persons. A public limited co. can be formed with a min of 7

persons and max of persons is unlimited.

Companies are governed by the Companies Act,

1956


10/37

Franchising Is something of a halfway house, lying between

entrepreneurship and employment

Is a system of distribution that enables the supplier (

franchiser) to arrange for a dealer( franchisee) tohandle a specific product or service under certainmutually agreed upon conditions

Franchiser is company which has developed andthoroughly tested its business methods and has

decide to increase the size of the business by offeringindividuals, the franchisees. the right to trade underits business name.


11/37

Benefits ofFranchising Management training and support Brand name appeal Standardized quality of goods and services National advertising program Financial assistance Proven products and business formats Centralized buying power Site selection and territorial protection Greater chance for success


12/37

Drawbacks ofFranchising Franchise fees and profit sharing Strict adherence to standardizedoperations Restrictions on purchasing Limited product line Unsatisfactory training programs Less freedom


13/37

REGISTRATION

Registering Your SSI Unit

The main purpose of Registration is to maintainstatistics and maintain a roll of such units for thepurposes of providing incentives and supportservice Steps:-1.ObtainSSIregistration

2.ProvisionalregistrationCertificate

3.PermanentRegistrationCertificate


14/37

SSI Registration Small Scale and ancillary unitsshould seek registration with theDirector of Industries of theconcerned State Government.


15/37

Benefits of Registering Theregistrationschemehasnostatutorybasis.

Unitswouldnormallygetregisteredtoavailsomebenefits,

incentivesorsupportgiveneitherbytheCentralorStateGovt.

TheregimeofincentivesofferedbytheCentregenerallycontainsthefollowing:

-Creditprescription,differentialratesofinterestetc.

-ExciseExemptionScheme-ExemptionunderDirectTaxLaws.-StatutorysupportsuchasreservationandtheInterestonDelayedPaymentsAct.


16/37

Objectives of TheRegistrationScheme

1. -ToEnumerateandMaintainarollofsmallindustriestowhichthepackageofincentivesand support are targeted.

2. -Toprovideacertificateenablingtheunitstoavailstatutory benefitsmainlyintermsofprotection.

3. -Toservethepurposeofcollection of statistics.

4. -TocreatenodalcentersattheCentre,StateandDistrictlevelstopromoteSSI.


17/37

Features of The Scheme -DICistheprimaryregisteringcentre

-Registrationisvoluntaryandnotcompulsory.

-TwotypesofregistrationisdoneinallStates:-

Firstaprovisionalregistrationcertificateisgiven.

Andaftercommencementofproduction,a

permanentregistrationcertificateisgiven.-PRCisnormallyvalidfor5yearsand

permanentregistrationisgiveninperpetuity.


18/37

Provisional RegistrationCertificate (PRC)

-This is given for the pre-operative period andenables the units to obtain the term loans andworking capital from financial institutions/banksunder priority sector lending.

- Obtain facilities for accommodation, land, other

approvals etc.

- Obtain various necessary NOCs and clearancesfrom regulatory bodies such as Pollution ControlBoard, Labor Regulations etc.


19/37

Procedure ForRegistrationA unit can apply for PRC for: Unitsemployinglessthan50/100workerswith/withoutpowercanapplyforregistrationevenforCERTAINSPECIFIEDitems

-UnitappliesforPRCinprescribedapplicationform.NofieldenquiryisdoneandPRCisissued.

-PRCisvalidforfiveyears.Iftheentrepreneurisunabletosetuptheunitinthisperiod,hecanapplyafreshattheendoffiveyearsperiod.

-Oncetheunitcommencesproduction,ithastoapplyforpermanentregistrationontheprescribedform.


20/37

Application

FormalitiesRequired:-

Application

CopyOfPRC

DetailedProjectReport

DocumentsRelatingToQualifications


21/37

PermanentRegistration CertificateEnables the unit to get the followingincentives/concessions:

-Exciseexemptions

-Income-TaxexemptionandSalesTax

exemptionasperStateGovt.Policy.

-Incentivesandconcessionsinpower

tariffetc.-Priceandpurchasepreferencefor

goodsproduced.

-Availabilityofrawmaterialdepending

onexistingpolicy.


22/37

Basisof

Evaluation

Thefollowingformbasisofevaluation:

-Theunithasobtainedallnecessaryclearanceswhetherstatutoryoradministrative.e.g.druglicenseunderdrug

controlorder,NOCfromPollutionControlBoard,ifrequiredetc.

-Unitdoesnotviolateanylocationalrestrictionsinforce,atthetimeofevaluation.

-Valueofplantandmachineryiswithinprescribedlimits.

-Unitisnotowned,controlledorsubsidiaryofanyotherindustrialundertakingaspernotification.


23/37

De-RegistrationASmallScaleUnitcanviolatetheregulationsinthefollowingwayswhichwillmakeitliableforde-registration:

1-Itcrossestheinvestmentlimits.

2-Itstartsmanufacturinganynewitemoritemsthatrequireanindustriallicenseorotherkindof

statutorylicense.

3-Itdoesnotsatisfytheconditionofbeingowned,controlledorbeingasubsidiaryofany

otherindustrialundertaking.


24/37

Clearancesfrom

SpecificDepartments

Required depending on:-1. Buildingplanapproval

2. Tradelicense

3. Salestaxregistration4. Centralexciseregistration

5. BISCertificate

6. PowerloomCertificate

7. Drugsandcosmeticslicense8. Approvalsofhotels

9. Foodadulterationactlicense.


25/37

Arrangingfor:-

Land/ Shed:-1. Choosingasuitableindustrialsite

2. ReadyindustrialshedonRent/onownershipbasis

3. Landfortheprojectistakenfrom

theStateIndustrialAreasDevelopmentBoard(Pvt.Landcanbetakenwithallnecessaryformalitiescompleted)


26/37

ArrangingforPlant

&Machinery

Choosing and ordering right machinery isof paramount importance Direct purchase- Purchasingthemachineryfromthe

recognizedmanufacturer/dealer

2.NSIC Hire Purchase Scheme- Leasingtheplantnmachinerytothe

promotersofunit,oncetheinstallmentispaid,theassetswillbecomethe

propertyoftheunit.


27/37

InfraStructure

SWAsSinglewindowagenciesAtdistrictleveln

Providesclearancesforvariousinfra.Themaininfrarequiredare:-

1. Landorshedforproject

2. Powerconnection-PowerTariff,NearestSubstation,Quality,Duration..

3. Watersupply

4. Connectivitytonearestrail,roadorport


28/37

Applyand

ObtainFinance

Various Sources Of Funds are:-1. Sharecapital

2. Internalaccruals3. Deposits-Own/Public

4. Debentures

5. Shorttermborrowings

6. LongtermLoans7. Bridgeloans(short-termloan,fora

periodof2weeksto3years)

8. WCloanslikecashcredit.


29/37

SmallScaleunits

ObtainLoansunder:-

1. Term loans Forfixedasset

CanbeavailedfromtheStateFinancialCorporationorfromcommercialbanks

Extentoftheloan-DependonProjectCostand

Entrepreneursbackground.

Repaymentin5-8years,basedonestimatedcashgenerationandprofitabilityoftheproject.


30/37

2.Working Capital Loan Neededfordaytodayoperationsofthe

unit WorkingCapitalneedsareassessed.

Securityforsuchloansarematerial(raw

materials,semi-finishedgoods,andfinishedgoods,).


31/37

Financial

AssistanceforSSI

SIDBI(SmallIndusDevBankOfIndia) SFC StateFinancialCorporations. NSIC-NationalSmallIndus.Corp. SIDCofVariousStates(SmallIndusDev.Corp.)

DIC TermLoansFrom-AllIndiaFinancialInstitutions such as ICICI,IDBI,IFCI.


32/37

ImplementThe

ProjectMajoractivities:-

1. Constructshed(Forthosewhopurchasedtheland)

2. Orderformachinery

3. Recruitpersonnel

4. Arrangeforrawmaterial

5. Marketing

6. Erectionandcommissioning.

7. Obtainfinalclearances.


33/37

Obtainfinalclearances. Registrationundersalestaxact-commercialsales

officeroftheareaconcerned Registrationundercentralexciseact-collectorof

centralexcise

Paymentofincometax-ITOoftheconcernedarea

Powerconnection-designatedofficerofStateelectricityboard

Etc..


34/37

EnvironmentPollution

RelatedClearances

NOC No Objection Certificate( NOC)1.POLLUTION BOARD ObtainedfromtheState PollutionControl Board(SPCB),beforecommencementofconstructionactivity.

EIA-EnvironmentImpactAssessmentfor highly polluting CategoryofIndustryandsubmissiontoSPCB.


35/37

NOC No Objection Certificate2.FromStatePollutionControl

Board(SPCB),For Industries RequiringWater And Effecting Effluent Disposal


36/37

3.ForUnitsFunctioningOutside

IndustrialArea

Permissionfromthemunicipalcorporation/municipality. Incaseprivateagriculturallandis

purchasedfortheproject,thelandhaveto

berezonedasindustrialzone,permission

issoughtforthesamefromDirectorate ofTown and Country Planning


37/37

4.ForRegistrationasa100%EOU

Clearancesofthedevelopment

commissioneroftheExportProcessing Zone (EPZ). IfCo.wishestoofferEquitySharesto

publicclearancefromSEBIisRequired.