Setting up an enterprise involves multiple steps,

including choosing an appropriate organizational form

and adhering to legal requirements such as those
stipulated under the MSMED Act (Micro, Small, and
Medium Enterprises Development Act, 2006). Here’s an
overview of the process and organizational forms under
this Act:
1. Understanding the MSMED Act
The MSMED Act was enacted to promote and develop
the micro, small, and medium enterprises (MSMEs) in
India. The Act provides a framework for the
classification, registration, and support for these
enterprises. The key objective is to enhance the
competitiveness of MSMEs by providing various
benefits, including financial assistance, technology, and
skill development.
2. Classification of Enterprises under the MSMED Act
The MSMED Act categorizes enterprises based on their
investment in plant and machinery or equipment:
• Micro Enterprises
o Manufacturing or service enterprises with
investments up to ₹1 crore.
• Small Enterprises
 o Manufacturing or service enterprises with
investments between ₹1 crore and ₹10 crore.
• Medium Enterprises
o Manufacturing or service enterprises with
investments between ₹10 crore and ₹50 crore.
These classifications help determine eligibility for
government schemes, subsidies, and assistance
programs.
3. Choosing an Organizational Form
When setting up an enterprise, it’s essential to choose
the right organizational form that aligns with the
business goals, size, and legal requirements. Some
common organizational forms in India are:
• Sole Proprietorship: A business owned and
operated by a single individual. It is easy to set up
and is suitable for micro-enterprises.
• Partnership: A business owned by two or more
individuals. It requires a partnership agreement and
is suitable for small and medium-sized enterprises.
• Limited Liability Partnership (LLP): A hybrid form of
a partnership and company, where partners have
limited liability. It is more common among small and
medium enterprises.
 • Private Limited Company: A legal entity separate
from its owners. It provides limited liability
protection and is suitable for small and medium-
sized enterprises that seek more formal structures.
• Public Limited Company: Suitable for larger
enterprises with a substantial scale of operations,
allowing them to raise funds by issuing shares.
4. MSME Registration
• MSME registration is not mandatory but is highly
beneficial for small and medium enterprises. It
allows enterprises to avail benefits such as priority
sector lending, subsidies, and government
schemes.
• The registration can be done online through the
Udyam Registration Portal. This is a one-time
registration and is applicable for both
manufacturers and service providers.
5. Steps for Setting Up an MSME Enterprise
• Step 1: Business Idea and Plan
o Formulate a clear business idea and develop a
business plan outlining the market research,
financial projections, and strategies for growth.
• Step 2: Choose Business Structure
 o Select the appropriate organizational form
based on the scale of operations, liability, and
future growth.
• Step 3: Registration and Licensing
o Register the business with the relevant
authorities (e.g., GST registration, Udyam
Registration for MSMEs).
• Step 4: Funding and Capital
o Explore funding options such as bank loans,
venture capital, or government schemes for
MSMEs. The MSMED Act facilitates access to
credit through various schemes.
• Step 5: Compliance
o Ensure compliance with labor laws, tax laws,
and other regulations (e.g., the Companies Act,
Shops and Establishments Act, etc.).
• Step 6: Growth and Scaling
o Once the business is operational, focus on
scaling by accessing government schemes,
seeking export opportunities, or improving
technology and processes.
6. Benefits under the MSMED Act
The MSMED Act provides several benefits to MSMEs,
including:
• Credit Facilitation: Access to credit facilities with
lower interest rates and priority sector lending from
banks.
• Subsidies and Incentives: Subsidies for technology
upgradation, quality certification, and skill
development programs.
• Government Contracts: MSMEs have a greater
chance of securing government contracts due to
preference and set-aside policies.
• Tax Benefits: Tax exemptions and reduced tax rates
for MSMEs.
7. Conclusion
Setting up an enterprise under the MSMED Act offers
many advantages, especially for small and medium
businesses. By choosing the right organizational form
and leveraging the benefits under the Act,
entrepreneurs can lay a strong foundation for their
business growth and sustainability.