Entrepreneurship Development

RMB 402
Dr. Anurag Joshi
Unit 5
 Launching a Business

1.Choose a business strategy

2.Select a Venture Name
3. Register venture with the State officials
4. Register with Internal Resource Service
5. Obtain Business License
6. Receive NOC by statutory agencies
Step 1 – Write a Business Plan. ...
Step 2 – Get Help and Training. ...
Step 3 – Choose Your Business Location. ...
Step 4 - Understand your Financing Options. ...
Step 5 – Decide on a Business Structure. ...
Step 6 – Register Your Business Name (“Doing
Business As”) ...
Step 7 – Get a Tax ID. ...
Step 8 – Register with Tax Authorities.
 Prepare a Business Plan and
Materials
1. Preparing a Business Plan An important first
step is to define your business, products and
services, and outline your goals, operating
procedures and competition. If your company
needs funding from a traditional loan or venture
capitalists, a business plan will be required. Make
sure your plan includes a marketing approach, so
people are aware of what you're selling and how
to find you.
2. Create a business logo, cards and
stationery. These items establish your
company’s identity and help potential
customers find and remember you.
 Meet Legal Requirements
l3. Incorporating your business or forming an LLC with
the state is important because it protects your personal
assets from business debts and liabilities. Other benefits
of forming a corporation or LLC include tax advantages
and greater credibility with customers, vendors and
business partners.
l4. Select an accountant and attorney. Many small

business owners seek advice from accountants and

attorneys. As you search for an accountant and attorney,
get referrals from friends or family, and look for
professionals who have worked with other small
business owners or companies in your specific industry.
5. Get necessary tax identification numbers,
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licenses and permits. A federal tax identification

number, or employer identification number (EIN),
acts like a social security number and is required
for corporations and LLCs that will have
employees. Contact your state's taxation
department to learn if a state tax identification
number is required in your state. Also keep in
mind that most businesses need licenses and/or
permits to operate—in your city, municipality,
county and/or state.
6. Insure your business and investigate other requirements.
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Some industries have specific insurance requirements. Discuss

your needs with your insurance agent to get the right type and
amount of insurance. Remember to look into any other
government tax and insurance requirements that might apply to
your business, particularly if you have employees. For example:
•Unemployment insurance
•Workers' compensation
•Federal tax
•State and local tax
•Self-employment tax
•Payroll tax requirements (such as federal unemployment tax, and
state unemployment tax)
•Sales and use tax
•GST
 Prepare yourself Financially
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7. Open a Business Bank Account. It is crucial to

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separate business finances from personal ones.

Most banks require company details, such as
formation date, business type, and owner names
and addresses. If your business is not
incorporated, most banks will require a DBA
(doing business as or fictitious business name).
Contact your bank about requirements prior to
opening an account.
8. Arrange your business accounting and apply
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for loans.
•You may want to use an accountant, or handle
finances yourself with a small business
accounting solution. Either way, properly account
for all business disbursements, payments
received, invoices, accounts receivable/accounts
payable, etc.
•If you don’t have enough capital to start a
business, this is also the time to seek funding
from banks or through Small Business
Administration (SBA) loan programs OR financing
institutions.
9. Establish a Business Line of Credit.
•This will help reduce the number of times your
company prepays for purchased products and
services.
•It also helps establish a strong credit history,
which is helpful for vendor and supplier
relationships. Getting a Dun & Bradstreet (D&B)
DUNS (or D-U-N-S) number for your business is
advisable, as it is often used to check business
creditworthiness.
10. Ready your workspace.
•For home-based businesses, ensure you are
meeting city zoning requirements for your area.
•For non home-based businesses, you'll likely
need to lease office space.
•Don't forget to purchase or lease furniture and
office equipment to get your business up and
running.
Forms of Business
Ownership
 Sole Proprietorship
“a business owned by one person who is subject to
claims of creditors”
Advantages: 1) ease of formation
2) retention of profits
3) tax advantages
4) control of decisions
5) flexibility
6) fewer gov’t. regulations
7) pride of ownership
 Sole Proprietorship (cont’d)
Disadvantages: 1) unlimited liability
2) limited capital
3) unstable business life/lack of
continuity
4) limited operating/ mgt. skills
5) hiring employees
 Partnership
“the voluntary association of two or more
people who have combined their resources to
carry on as co-owners of a lawful enterprise for
their joint profit”
 Advantages of Partnership
1) ease of formation
2) complementary skills
3) access to capital
4) tax advantages
5) retention of profits
6) group decision making
7) minimal governmental control
 Disadvantages of Partnership
1) unlimited liability
2) uncertain duration
3) conflict
4) dissolution
 Types of Partnership
1) active/general partner
2) secret partner
3) silent partner
4) dormant partner
5) limited partner
 Articles of Partnership
should address the following:
1) legal name of the partnership
2) nature of the business
3) duration of the partnership
4) contributions
5) sales, loans and leases
6) withdrawals and salaries
7) responsibility and authority
8) dissolution
9) arbitration
 Corporation
“an artificial being, invisible, intangible, and
existing only in contemplation of law; an entity
that is something that has a distinct existence
separate and apart from the existence of its
individual members”
 Corporation (cont’d)
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composed of:

shareholders/stockholders
directors
officers
 Advantages of Corporations
1) limited liability
2) transfer of ownership
3) stability/perpetual life
4) acquisition of capital
5) skilled managers
6) stockholders as customers
Disadvantages of Corporations
1) taxes
2) rigidity
3) shared ownership
4) regulations
 Types of Corporations
1) domestic
2) foreign
3) alien
4) publicly held/open
5) closely held/closed
 “S” Corporations
•provided for in subchapter S of the tax
code
•created especially for small business
•taxed like partnerships
 “S” Corporations (cont’d)
Advantages:
1) lower “current” income tax
2) exemption from the corporate alternative
minimum tax
3) flexibility in using different accounting methods
 “S” Corporations (cont’d)
Disadvantages:
1) multistate “S” corporations
2) banks may be reluctant to lend to “S”
corporations that distribute all their earnings
3) rigid restrictions
Restrictions of “S” Corporations:
1) limit of 75 stockholders
2) stockholders must be individuals, estates, or certain trusts
3) no corporations, partnerships, or non-resident aliens can
be stockholders
3) only one class of outstanding stock
4) the firm must be a domestic corporation
5) certain states do not permit “S” corp. Status
6) all stockholders must agree to the decision for form an S-
corporation
7) company cannot be an ineligible corporation
Incorporating a Small Business
•legal counsel is recommended
•most states have specific standards
•Articles of Incorporation
 Articles of Incorporation
At a minimum must include:
•Corporate name
•Location of the company
•Purpose of the company
•Duration
•Names and addresses of incorporators
•Amount and type of stock to be issued
•Capital required at time of incorporation
Articles of Incorporation (cont’d)
•Provisions for stockholders pre-emptive
rights
•Names and addresses of initial directors and
officers
•Provisions for regulation of the affairs of the
company
•Right to amend, alter, or repeal corporate
provisions
•Bylaws
 Limited Liability Company
•“combines aspects of partnerships with
the limited liability of a corporation”
•new form of business ownership
•approved in all states
•owners are known as members
 Limited Liability Company (cont’d)
Advantages:
1) corporate-like limited liability & asset protection
2) flexibility of partnership
3) no significant requirements
4) tax status of partnership
 Joint Venture
“An agreement between two or more groups to
form a business entity in order to achieve a
specific goal or to operate for a specific period
of time”. (Pride, Hughes, Kapoor 2005)
- Acts like a general partnership, but is clearly
for a limited period of time or a single project
 Small Business
“ a business which is independently owned and
operated and is not dominant in its field of
operations”
1) quantitative criteria
2) qualitative criteria
 Small Business Administration
(SBA) Guidelines
•Manufacturing: maximum of 500 – 1500
employees
•Wholesaling: maximum of 100 employees
•Retailing: yearly sales/receipts from $6million -
$24.5 million
•Mining: maximum of 500 employees
 SBA Guidelines (cont’d)
General Construction: average annual receipts
from $12 million- $28.5 million
Special Trade Construction: annual sales up to
$12 million
Agriculture: maximum annual receipts of $.75
million - $5 million
Services: maximum annual receipts ranging
from $6 million - $29 million
 IPO

•Register your Establishment

•Generate Digital ID and Tax Id
•Issue Prospectus
•Enrolled your business with Stock Exchanges
•Fulfill requisites of issuing an IPO
•Acquire Competent Authorities
Step 1
 IPO

•Register your Establishment

•Generate Digital ID and Tax Id
•Issue Prospectus
•Enrolled your business with Stock Exchanges
•Fulfill requisites of issuing an IPO by OTC (over the
counter exchange)
•Acquire Competent Authorities
 IPO

•Register your Establishment

•Generate Digital ID and Tax Id
•Issue Prospectus
•Enrolled your business with Stock Exchanges
•Fulfill requisites of issuing an IPO by ADR/GDR
(American/Global Depository Receipt)
•Acquire Competent Authorities
Revival of a Business
•Avoid excess optimism when the business appears to be
successful
•Always prepare good marketing plans with career
objectives
•Make good cash projections and avoid capitalization
•Keep side by side with the market place
•Identify stress points that can put business in jeopardy
•Go periodically for Nine Cell Matrix assessment
•Keep the working capital adequately
•Consult the competent/experts before major change
initialization
•Get necessary compliance always
Succession of a Business
•Allow sufficient time for the processes by starting early
•Estimate the firm’s value or hire a consultant to do it for
you
•Evaluate potential successors on their Merit
•If family members are being considered, make sure they
have skills & motivation necessary to carry on the
business
• Provide a transition period so that the successor can
learn the business
•Consider option such as ESOP for a management
succession
•Set a date of completion of the transition and stock to it
 Winding up of a Company
The term ‘winding up’ of a company may be defined as
•the proceedings by which a company is dissolved (i.e.
the life of a company is put to an end).
•Thus, the winding up is the process of putting an end to
the life of the company. And during this process, the
assets of the company are disposed of, the debts of the
company are paid off out of the realized assets or from
the contributories and if any surplus is left, it is
distributed among the members in proportion to their
shareholding in the company.
 Winding up of a Company
The term ‘winding up’ of a company may be defined as
•the proceedings by which a company is dissolved (i.e.
the life of a company is put to an end).
•Thus, the winding up is the process of putting an end to
the life of the company. And during this process, the
assets of the company are disposed of, the debts of the
company are paid off out of the realized assets or from
the contributories and if any surplus is left, it is
distributed among the members in proportion to their
shareholding in the company.
 LIQUIDATOR
A person appointed to carry out the
winding up of a company is called
liquidator. If the winding up is through
Court, the term used for such person is
official liquidator .
The duties of liquidator include to get
in and realise the property of the
company, to pay its debts, and to
distribute the surplus (if any) among
Consequences of winding up
Some important consequences of winding up of company are:
As regards the company itself:
winding up does not mean that the company has ceased to exist. The
company exists as a corporate entity with all the rights of such entity,
with only change that its management and administration is to be
carried on through liquidator / liquidators till the final dissolution of the
company.
As regards the shareholders :
A new statutory liability as contributories comes into existence. Every
transfer of shares or alteration in the status of a shareholder, after the
winding up has commenced by the order of the Court , shall unless
approved by the liquidator , be void.
 Modes of winding up

The winding up of a company may be either-

•by the Court; or

•voluntary; or

•subject to the supervision of the Court.

Winding up of the company by the
Court:
The winding up of a company by an order of the
Court is called the compulsory winding up.
Section 305 of the Ordinance envisages the
following circumstances, under which a
company may be wound up by the Court on the
petition submitted to it:-

a)if the company has, by special resolution,

resolved that the company be wound up by the
Court;
b)if default is made in delivering the statutory
 Who is competent to file petition
for winding up in the Court?
Petition may be presented by any one of the
following:

1.The company may itself by passing a special

resolution
2.Creditor or Creditors.
3.Any contributory or contributories
4.Registrar of Companies
Voluntary winding up of members
of the company
A company can be wound up voluntary
a)On expiration of the period fixed for the duration of
the company by its Articles of Association or on
occurrence of event leading to dissolution of the
company as provided in the Memorandum and Articles
of Association and company has to pass a special
resolution in general meeting for its wound up
voluntarily within five weeks of filing of declaration of
solvency, and
b)On passing of the special resolution that the company
be wound up voluntarily. A voluntary winding up is
deemed to commence at the time of passing of the
PROCEDURE FOR VOLUNTARY
WINDING UP
The following steps are to be taken for Member’s voluntary
winding up under the Provisions of the Ordinance, and the
Companies Rules.
•Step 1. Where it is proposed to wind up a company voluntarily, its directors
make a declaration of solvency on Form 107 prescribed under Rule 269 of the
Rules duly supported by an auditors report and make a decision in their
meeting that the proposal to this effect may be submitted to the shareholders.
They, then, call a general meeting (Annual or Extra Ordinary) of the members
(Section 362 of the Ordinance)
•Step 2. The company, on the recommendations of directors, decides that the
company be wound up voluntarily and passes a Special Resolution, in general
meeting (Annual or Extra Ordinary) appoints a liquidator and fixes his
remuneration. On the appointment of liquidator, the Board of directors ceases
to exist. (Sections 358 and 364 of the Ordinance)
PROCEDURE FOR VOLUNTARY
WINDING UP
•Step 3. Notice of resolution shall be notified in official
Gazette within 10 days and also published in the
newspapers simultaneously. A copy of it is to be filed
with registrar also. (Section 361 of the Ordinance)
•Step 4. Notice of appointment or change of liquidator is
to be given to registrar by the company along with his
consent within 10 days of the event.
(Section 366 of the Ordinance)
•Step 5. Every liquidator shall, within fourteen days of
his appointment, publish in the official Gazette, and
deliver to the registrar for registration, a notice of his
•Step 6 . If liquidator feels that full claims of the creditors
cannot be met, he must call a meeting of creditors and place
before them a statement of assets and liabilities. (Section 368
of the Ordinance)
•Step 7 . A return of convening the creditors meeting together
with the notice of meeting etc. shall be filed by the liquidator
with the registrar, within 10 days of the date of meeting.
(Section 368 of the Ordinance)

•Step 8 . If the winding up continues beyond one year, the

liquidator should summon a general meeting at the end of
each year and make an application to the Court seeking
extension of time. (Section 387(5) of the Ordinance)
•Step 9 . A return of convening of each general meeting
together with a copy of the notice, accounts statement and
minutes of meeting should be filed with the registrar within 10
days of the date of meeting. (Section 369 of the Ordinance)
•Step 10. As soon as affairs of the company are fully wound up,
the liquidator shall make a report and account of winding up,
call a final meeting of members, notice of convening of final
meeting on Form 111 prescribed under Rule 279 of the Rules
before which the report / accounts shall be placed. (Section
370 of the Ordinance)
•Step 11. A notice of such meeting shall be published in
the Gazette and newspapers at least10 days before the
date of meeting. (Section 370 of the Ordinance).
•Step 12. Within a week after the meeting, the liquidator
shall send to the registrar a copy of the report and
accounts on Form 112 prescribed under Rule 279 of the
Rules. (Section 370 of the Ordinance)
 DOCUMENTS REQUIRED FOR VOLUNTARILY
WINDING UP BY MEMBERS
•Special Resolution on Form-26 (prescribed under the Companies
(General Provisions and Forms) Rules, 1985 for voluntary winding up.
•Declaration of Solvency on Form 107 under the Rules.
•Affidavit by Directors of the company including Chief Executive
verifying the attached auditor’s report, profit and loss account, balance
sheet, statement of assets and liabilities prepared from the date of
closing of last accounts till the latest practicable date, immediately
before the making of declaration.
•Consent of liquidator.
•A copy of Notice of resolution passed for winding up the company
voluntarily and published in the Official Gazette.
 DOCUMENTS REQUIRED FOR
VOLUNTARILY WINDING UP BY MEMBERS
•A copy of Notice for appointment of liquidator and published in the
Official Gazette.
•A copy of Preliminary report prepared by the liquidator.
•Final report and accounts of the company prepared by liquidator
presented in General meeting of shareholders after finalization of
winding up.
•Notice of final meeting.
•Return containing final report and accounts along with minutes of
meeting to be filed with the concerned Company Registration Office.
End of a Business
•Intimate the Authority and Public Accordingly by
Notification in advance legitimately
•Clear your tax and other liabilities (financial/non
financial)
•Deregister your certificate from Registrar of
Companies
•Get NOC by Local Authorities/Administration
•Submit you licenses