UNIT-I (NTRODUCTION TO ENTREPRENEURSHIP)

MSME Act, 2006

Entrepreneurship: Concept
Entrepreneur: The entrepreneur is defined as someone who has the ability and desire to establish,
administer and succeed in a startup venture along with risk entitled to it, to make profits.
The term entrepreneur is a French word, and is derived from the French word “enterprendre”. It
means “to undertake”. It is commonly used to describe an individual who organizes and operates
a business or businesses, taking on financial risk to do so.
Around 1700 A.D. the term was used for architects and contractor of public works. In many
countries, the term entrepreneur is often associated with a person who starts his/her own new
business.

Definition

Adam Smith’s definition – “The entrepreneur is an individual, who forms an organization for
commercial purpose. She/he is proprietary capitalist, a supplier of capital and at the same time a
manager who intervenes between the labour and the consumer. “Entrepreneur is an employer,
master, merchant but explicitly considered as a capitalist”.

MSME Act, 2006

The Act creates the framework required to monitor and control the growth of India's micro, small,
and medium-sized enterprises

Definition of MSME

MSME stands for Micro, Small, and Medium Enterprises, which are businesses categorized
based on their investment in plant, machinery, or equipment and their annual turnover. These
categories vary from country to country, but the general criteria are based on the size of the
business in terms of assets and revenue.

Classification of Manufacturing Enterprises

1. Micro Enterprises:
- Investment in plant and machinery does not exceed ₹1 crore.
- Turnover does not exceed ₹5 crore.
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2. Small Enterprises:
- Investment in plant and machinery is more than ₹1 crore but does not exceed ₹10 crore.
- Turnover does not exceed ₹50 crore.
3. Medium Enterprises:
- Investment in plant and machinery is more than ₹10 crore but does not exceed ₹50 crore.
- Turnover does not exceed ₹250 crore.

Key Characteristics

Manufacturing enterprises must produce goods for any of the sectors listed in the First Schedule
of the Industries (Development and Regulation) Act of 1951.
They utilize machinery and plants to add value to products, giving them unique identities or
characteristics.

Service enterprises

Companies that provide or deliver services are referred to as service enterprises and are identified
by their equipment investment. Service enterprises are classified based on their investment in
equipment. The Act defines specific thresholds to determine whether a service enterprise is
considered micro, small, or medium. Here's the classification:

1. Micro Enterprises (Service Sector):

- Investment: Does not exceed ₹10 lakh (1 million Indian Rupees) in equipment.

2. Small Enterprises (Service Sector):

- Investment: More than ₹10 lakh but does not exceed ₹2 crore (20 million Indian Rupees)
in equipment.

3. Medium Enterprises (Service Sector):

- Investment: More than ₹2 crore but does not exceed ₹5 crore (50 million Indian Rupees)
in equipment.
These thresholds are aimed at determining the scale of the enterprise and to offer tailored support
for their growth, like access to credit, technology, and market assistance under various government
schemes.
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Amendment 2020

These thresholds are aimed at determining the scale of the enterprise and to offer tailored support
for their growth, like access to credit, technology, and market assistance under various government
schemes.
Amendment 2020
Salient Features of MSMED Act, 2006
• ‘Industry’ replaced by ‘enterprise’ which include service enterprises also.
• Ambit of sector enlarged to cover medium enterprises
. • Constitution and establishment of National Board for MSME (Chapter II) and Advisory
Committee [Section 7 (2)]
• Simplification of registration procedure
• Measures for promotion and development
 Credit Facilities (u/s 10)
 Procurement Preference Policy (u/s11)
 Grants/Funds by Govt. (u/s 12,13)

Significance of the MSME Sector in the Indian Economy

o Exports: MSMEs significantly influence India's exports, contributing to more than 45%
of the total export value.
o Inclusive growth: MSMEs provide employment opportunities to rural residents,
particularly those from disadvantaged social groups, promoting inclusive growth. second-
o
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largest employment generator after agriculture, providing jobs to approximately 120

million people in India.
o Financial inclusion: MSMEs facilitate financial inclusion by offering banking services
and products to people in tier-II and tier-III cities.
o Promote innovation, Stability and resilience: MSMEs encourage innovation by enabling
aspiring entrepreneurs to develop innovative products, enhancing business
competitiveness, and driving growth.
o Contribution to GDP: With around 36.1 million units across the country, MSMEs
contribute 6.11% to the manufacturing GDP and 24.63% to the services GDP.
Incentives and Subsidies available to small businesses in India
1. Credit Linked Capital Subsidy Scheme (CLCSS):
- 15% capital subsidy on investment in new plant and machinery.
- Maximum subsidy limit of ₹1 crore.
- Aimed at helping small businesses upgrade technology.
2. Prime Minister’s Employment Generation Programme (PMEGP):
- Subsidy for setting up new micro-enterprises.
- 15%-35% subsidy on project cost, with higher rates for rural areas.
- Focuses on generating self-employment opportunities.
3. Technology Upgradation Fund Scheme (TUFS):
- Subsidy of 15%-25% for upgrading technology, especially in the textile sector.
- Supports businesses in adopting advanced technology to increase efficiency.
4. Credit Guarantee Fund Scheme (CGS):
- Collateral-free loans for MSMEs.
- Government provides a 75%-85% guarantee on loans up to ₹2 crore through CGTMSE.
- Encourages small businesses to access finance without needing collateral.
5. Interest Subsidy Eligibility Certificate (ISEC) Scheme:
- Provides interest subsidies of 4%-6% on loans for Khadi and Village Industries.
- Reduces the cost of working capital loans.
6. Export Promotion Subsidies:
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- Assistance through schemes like Export Promotion Capital Goods (EPCG)

and Market Access Initiative (MAI).
- Subsidies for international trade fairs, product development, and packaging.
- Helps small businesses enter and expand in global markets.
7. National Small Industries Corporation (NSIC) Subsidies:

- Single Point Registration Scheme (SPRS) offers tendering subsidies and waives earnest money
deposits for government contracts.

- Support for procurement and marketing assistance.

8. Marketing Assistance and Technology Upgradation (MATU) Scheme:

- Subsidies for participation in international trade fairs and exhibitions.

- Financial assistance for product certification and packaging improvement.

9. Infrastructure Development Subsidies:

- Financial support under the Micro and Small Enterprises – Cluster Development Programme
(MSE-CDP).

- Subsidies for creating infrastructure, such as testing centers, common facility centers, and
training facilities.

10. Mudra Loans:

- Collateral-free loans up to ₹10 lakhs through the Pradhan Mantri Mudra Yojana (PMMY).

- Special focus on micro and small businesses, particularly in sectors like manufacturing, trading,
and services.

11. Priority Sector Lending:

- Small businesses are part of the priority sector lending category for banks.

- Banks are mandated to allocate a percentage of their loans to small businesses, improving
access to credit.
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12. Tax Benefits for MSMEs:

- Lower income tax rates for small companies as part of government support for
entrepreneurship.

Registering under the MSME (Micro, Small, and Medium Enterprises) or SSI (Small
Scale Industries) in India-The Udyam Registration portal is used for registering MSMEs
online.
Step-by-Step Process to Register MSME (SSI)
Step 1. Visit the Udyam Registration Portal: Go to the official Udyam Registration
website: [https://udyamregistration.gov.in] (https://udyamregistration.gov.in).
Step 2. Choose the Registration Option: You will find two options on the homepage:

- For New Entrepreneurs (who have not registered as MSME).

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- For those with UAM (Udyog Aadhaar Memorandum) or EM-II (to migrate
to Udyam).
If you’re a new entrepreneur, click on “For New Entrepreneurs who are not Registered
yet as MSME”.
Step 3. Enter Aadhaar Number:
- You’ll be asked to enter the Aadhaar number of the entrepreneur or the owner of the
business.
- Select the type of organization (Proprietorship, Partnership, LLP, etc.).
Note: If your business is a proprietorship, the Aadhaar number of the proprietor is used.
For other types of businesses, use the Aadhaar number of the authorized signatory.
Step 4. Verification via OTP:
- After entering your Aadhaar number, you will receive an OTP (One-Time Password)
on the mobile number linked to Aadhaar. Enter the OTP for verification and proceed to the
next step.
Step 5. Enter Personal and Business Details: After Aadhaar verification, fill in the
following details:
- Name of the Entrepreneur/Owner.
- Name of the Enterprise/Business.
- Type of Organization (Proprietorship, Partnership, Company, etc.).
- PAN of the business or individual (if applicable).
- Address of the business.
- Bank Account details (Bank name, IFSC code, and account number).
- National Industry Classification (NIC) Code for your business activities (You can
search for the relevant code during the process).
Step 6. Investment and Turnover Details:
- Provide details of your business's investment in plant and machinery or equipment.
- Enter the annual turnover of the enterprise.
Step7. Submit and Generate Udyam Registration Number:
- Click on the “Submit and Get Final OTP” button. OTP on your registered mobile
number for final verification.
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- After OTP verification, your Udyam Registration Certificate will be

generated.
Step 8. Download Udyam Registration Certificate:
- Download the Udyam Registration Certificate in PDF format.
- This certificate is valid for a lifetime, and there is no need for renewal.
Documents Required for MSME Registration:
- Aadhaar Number (mandatory).
- PAN Card (for businesses or individuals, depending on the type of organization).
- Bank Account Details.
- GSTIN (optional, but mandatory if applicable).
Important Points to Note:
- No Fees: The registration process is entirely free of charge.
- Multiple Activities: You can register for multiple business activities under a single
Udyam Registration number.
- Mandatory for MSME Schemes: Udyam Registration is mandatory to avail benefits
under various government MSME schemes.
- Single Registration: If you own multiple enterprises, you can register all of them under
a single Aadhaar number with different Udyam Registration numbers.
Major Incentives to Small Scale Industries
Many incentives are provided both by the Central and State Governments to promote the
growth of small-scale industries and also to protect them from the onslaught of the large-
scale
Forms of ownership
1. Sole proprietorship- Indian Proprietorship Act 1908
A sole proprietorship is owned and operated by one individual. The owner of a sole proprietorship
doesn't need the approval of a board or partner to make daily business decisions. They also get to
keep and determine what to do with the business' profits.
Here are the advantages and disadvantages of a sole proprietorship:
Advantages
 They're simpler to form than other businesses because it doesn't require a lot of paperwork.
 The owner has sole control of all processes and decision-making.
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 Filing taxes for this type of business is easier than for other types of businesses.
Disadvantages
 The owner accepts all responsibility for business losses.
 The owner is responsible for raising capital for startup costs.
 It may be harder to sell the business.
Definition: A sole proprietorship is a business owned and operated by one individual, who is
personally responsible for all aspects of the business.
Characteristics:
1. Single ownership
2. Unlimited personal liability
3. No separate business entity
4. Easy to establish and dissolve
5. Simple tax compliance
Example:
Business: Rohan's Photography
Owner: Rohan Sharma
Description: Rohan, a skilled photographer, starts a photography business in Mumbai. He
invests ₹50,000 in equipment and registers his business under his name.
2. Partnership- Partnership Act 1932
A partnership is a form of ownership that involves two or more owners controlling a business. The
joint owners may run the day-to-day activities by themselves or through appointed representatives.
In a partnership, the owners sign a formal agreement that clearly states a partner's rights, shares
and responsibilities.
Business leaders typically divide partnerships into limited liability partnerships and unlimited
liability partnerships. Here's how these types of partnerships work:
 Limited liability partnership: In a limited liability partnership, individual partners don't
accept losses caused by another, meaning no legal entity can seize or sell one partner's
possessions to pay for the other partner's debts.
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 Unlimited liability partnership: In an unlimited liability partnership, both partners are

responsible for the business. If one partner is directly responsible for a loss, all other
partners pay for the debt, even if they aren't directly responsible for the losses.
Here are the advantages and disadvantages of partnerships:
Advantages
 They provide the potential to gain wider access to knowledge and expertise from partners.
 The infusion of capital is easier than it is in other business structures.
 This business type offers the ability to share the burden of startup costs and capital
expenditure.
 The division of labor among partners creates a better work-life balance.
Disadvantages
 Partners carry the burden of liabilities, regardless of the partner who is responsible for the
debt.
 There's a potential loss of autonomy as all partners deliberate on key decisions.
 There can be more potential for conflict between partners.
 Selling complications can arise if one partner disagrees with the plan to sell the business.
3. Limited liability Partnership/ Company
A Limited Liability Company or Partnership (LLP/ LLC) is a business structure that offers the
flexibility of a partnership combined with the limited liability protection of a corporation. In an
LLC, the owners (called "members") are not personally liable for the company’s debts and
liabilities. LLCs are commonly referred to as Limited Liability Partnerships (LLPs) and are
governed by the Limited Liability Partnership Act, 2008. Additionally, companies with limited
liability that are not partnerships can register as Private Limited Companies under the Companies
Act, 2013. Here are some advantages and disadvantages of a limited liability company:
Advantages
 Flexibility to adopt different tax structures
 Potential to earn tax deductions for business losses
 Responsibility for business liabilities doesn't belong to shareholders
 Ability to restructure without seeking regulatory approval
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Disadvantages
 It can be challenging to raise capital for this type of business.
 This can be more expensive to form than other structures.
 The salary and profits are often subject to self-employment taxes.
4. Private corporation- companies Act 2013
A private corporation involves individuals forming a group to manage a business. This kind of
ownership separates assets and liabilities from the owners. In case of loss, the owners only lose
the amount they invested. Those starting a corporation submit a document called the articles of
incorporation in the state where their business is located.
Private corporations allow individuals to buy stock from the corporation, giving the business more
capital to grow the business or invest in better technology or tools. Individuals who buy stock
become part-owners of the corporation. Some advantages and disadvantages of a private
corporation include:
Advantages
 No obligation to reveal financial results to the public
 Limited or no shareholder pressure for short-term results
 Limited liability exposure for owners
Disadvantages
 Restricted access to capital markets
 More stringent regulations than a partnership or sole proprietorship
 Potential for higher administrative costs
 Less control of the business with more shareholders
5. Cooperative- Cooperative Societies act 2002
A cooperative is an enterprise that is privately owned by the same people who benefit from it. The
owners of a cooperative, who are also the shareholders, are involved in the decision-making
process. There is no limit to the number of shareholders in a cooperative, which means there is no
limit to the number of owners.
Owners receive a share of the profits from the cooperative's investments, depending on their
shareholdings. The owners of a cooperative elect a board who manages the business. Here are
some advantages and disadvantages of a cooperative:
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Advantages
 Grants equal rights to members during the decision-making process
 Brings members together for a common cause
 Provides access to diverse and unique funding opportunities
Disadvantages
 Fewer incentives for angel investors and venture capitalists
 Slower decision-making among owners
6. Nonprofit Corporation
A nonprofit corporation operates to benefit a community or providing a social service. For
someone to operate this form of ownership, they're required to prove to a government entity that
their services benefit society. These corporations are typically charitable organizations in the fields
of science, criminal justice, education and humanitarian affairs.
Non-profits Corporation can be registered under several acts, depending on their structure and
purpose:
 Societies Registration Act, 1860: for forming societies.
 Indian Trusts Act, 1882: for charitable trusts.
 Section 8 of the Companies Act, 2013: for forming a nonprofit corporation (often called a
"Section 8 company") that promotes arts, science, sports, education, research, or social
welfare, without distributing profits to its members.
Here are some advantages and disadvantages of becoming a nonprofit corporation:
Advantages
 There is limited liability protection for owners' assets.
 You are eligible for tax exemption.
 You are eligible to receive grants.
 You have diverse fundraising opportunities.
 Donations are tax-exempt.
Disadvantages
 There are high startup costs.
 The approval of tax exemption status may take a long time.
 You are not always eligible for tax exemption.
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 There might be excessive public scrutiny of how you use funds and donations.
7. Benefit corporation
Sometimes called B corps, benefit corporations aim to benefit the public while also making a
profit. Certified B corporations are benefit corporations that have received a third-party
certification from the nonprofit B Lab. Certified B corps must achieve a minimum verified score
on the B Impact Assessment and are required to gain recertification every three years.
Both benefit corporations and certified B corps are legally required to consider the impact of their
decisions on their workers, customers, suppliers, community and the environment. Most
government entities require B corporations to submit regular reports that indicate the public benefit
stemming from their business. Some advantages and disadvantages of a B corporation and a
certified B corps include:
Advantages
 It allows instant networking with like-minded corporations.
 It may benefit from tax exemptions.
 It attracts investors seeking to make a social impact.
Disadvantages
 There are more expansive reporting requirements for both B corps and certified B corps.
 There are stringent standards to maintain status as a certified B corps.
 The B Lab certification fees range from $500 to $50,000 per year.
8. Franchise- Indian Contract Act 1872
• Franchise is a continuing relationship between the parent company (called the franchisor)
and an individual business unit (called the franchisee); under which the parent company
provides a licensed privilege to the business unit to use its trade mark, in return for a royalty
payment made to the parent company.
• FEATURES:
I. Based on Agreement
II. Term of 5 Years
III. Undertaking by Franchisee
IV. Specified Royalty
V. Selling Same Product & Similar Shop Decor
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VI. Follow Parent Company’s Policies

VII. Training to Personnel by Franchisor
9.Licensing
A company that owns rights in a patent, know-how, or other IP assets, but cannot or does not want
to be involved in the manufacturing of products, could benefit from the licensing out of such IP
assets by relying on the better manufacturing capacity, wider distribution outlets, greater local
knowledge and management expertise of another company (the Licensee). Licenses are regulated
under the Trade Marks Act, 1999, Patents Act, 1970, and Copyright Act, 1957, depending on the
type. Licensing agreements for IP are contracts that can be enforced under the Indian Contract
Act, 1872.
FEATURES:
I. Licensors give license for Production
II. Gain Access to New Markets
III. Improvements in Product
IV. Royalty Income
Advantage
I. Product reaches Market Faster
II. R&D Support to Small Companies
III. Quick Access to New Technology
IV. Create New Products & Market Opportunities
Disadvantage
I. Extra Expense added to the Product
II. Dependent on Agreement & its Renewal
III. Financial Commitment even if market not ready
10. Lease
A lease can be defined as an arrangement between the lessor (owner of the asset) and lessee (user
of the asset) whereby the lessor purchases an asset for the lessee and allows him to use it in
exchange for periodical payments called lease rentals or minimum lease payments(MLP).
The Indian Registration Act, 1908: This act requires that leases of immovable property for a
term exceeding one year be registered.
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The Transfer of Property Act, 1882: While this act doesn't directly mandate registration, it
governs the rights and responsibilities of both parties involved in the lease of immovable property.
FEATURES:
I. Renewed Periodically
II. Asset goes back to lessor on termination
III. Asset sold to third party by lessor
IV. Asset may be sold to lessee by lessor
Advantages of Leasing
I. Balanced Cash Outflow
II. Quality Assets
III. Better use of Capital
IV. Tax Benefit
V. Better Planning
VI. Low Capital Expenditure
VII. Termination Rights
Disadvantages of Leasing
I. Lease Expenses
II. Limited Financial Benefits
III. Debt
IV. Processing & Documentation
V. No Ownership
VI. Maintenance of Asset
VII. ‘Limited Tax Benefit