UNIT III

Meaning of Project:
“A project has a distinct mission that is designed to achieve and a clear
termination point, the achievement of the mission.” - Newman, Summer and
Warren.
“Project is the whole complex of activities involved in using resources to gain
benefits.” - Gillinger.
“A project is an organized unit dedicated to the attainment of a goal – the
successful completion of a project, on time, within a budget, in conformance
with pre-determined program specifications.” Encyclopedia of Management.

Therefore, project has the following three basic attributes;

1. A course of action.
2. Specific objectives.
3. Definite time perspective.

Projects can be classified in the following ways;

(a) Quantifiable and Non-quantifiable projects:
Projects for which quantity assessment of benefits can be made are called
quantifiable projects; E.g.: - Industrial development, power generation,
mineral development etc., fall in this category. Those projects in which
proper quantifiable assessments cannot be made are called non-
quantifiable projects. Projects involving health education, and defense are
examples of this kind of project.

(b) Sectoral Projects:

Projects may fall into the following classifications;
(i) Agriculture and allied sectors.
(ii) Irrigation and Power sectors.
(iii) Industry and mining sectors.
(iv) Transport and communication sector
(v) Social service sector.
 (vi) Social Service sector.
(vii) Miscellaneous sector.

(c) Techno-Economic Projects:

This type of projects include
(a) Factor Intensity- Oriented Classification: Based on factor intensity
classification, projects may be classified into capital intensive or labour
intensive projects. If large investment is made in Plant and machinery,
the project will be termed as “capital intensive”. On the contrary,
projects involving a large number of human resources, will be termed as
“labour intensive” projects.
(b) Causation-Oriented Classification: When causation is used as the basis
of classification a project, it may be defined as demand based or raw
material based project. The very existence of demand of certain goods
or service makes the project demand based. The availability of certain
raw material, skills or other inputs makes the project raw-material
based.
(c) Magnitude-Oriented Classification: This classification is based on the
size of the investment involved in the project. They can be classified as
large scale, medium scale or small scale industries.

PROJECT SELECTION:
Project selection consists of two basic parts;
(i) Project Identification
(ii) Project Selection.
Project Identification: Project selection starts with the generation of a product
idea. In order to select the most promising project, the entrepreneur needs to
generate a few ideas about the possible projects he can undertake. The project
can be determined from any one or many of the following sources;
(i) Knowledge of potential customers needs.
(ii) Watching the emerging trends in demands for certain products.
(iii) Scope for producing substitute products.
(iv) Going through professional magazines catering to specific fields.
(v) Success stories of known entrepreneurs, friends or relatives.
(vi) Visits to Fairs and Exhibitions displaying new products and services.
(vii) Meeting Government agencies.
(viii) Ideas from knowledgeable persons.
(ix) Knowledge from Government bodies.
(x) From a new product introduced by competitors.
(xi) Market characteristics: Look for unfulfilled demand of various
products and services.
(xii) Imports & Exports: The Government of India encourages exports and
various EXIM policies encourage entrepreneurs to think about new
options.
(xiii) Emerging new technology: Commercial explorations and indigenous
or imported technologies and know-how is another source of project
idea.
(xiv) Social and Economic trends: Social and economic trends of people
are often dynamic in nature and offer wide opportunities. An
entrepreneur should observe such changes. Now there is a shift
towards readymade garments and western outfits.
(xv) Changes in consumption pattern: Changes in consumption pattern in
home and foreign countries also lead to good enterprises.
(xvi) Revival of sick units: A sick unit often gives ample investment
opportunities in the hands of a dynamic entrepreneur.

An entrepreneur is said to be an opportunity seeker. For the potential

entrepreneur, the first task is to identify, explore and then select an
attractive business opportunity.

Opportunity can be defined as an attractive and excellent project idea

which an entrepreneur searches for and accepts as a basis for his
investment decision. A good business opportunity must be capable of being
converted into good business and feasible projects.
 Two major characteristics of a good business opportunity are as follows;
1. Good and wide market scope, i.e. gap between present or likely demand
and supply.
2. An attractive, acceptable and reliable return on investment.

Business opportunities need to be analysed from the point of view of

production, commercial, managerial, potential and prospective demand for
the product as well as technical viability.
Identification of the ideas also involves the following steps;
I. Preliminary evaluation.
II. Selection of product or service.
III. Conduction of a market survey.
IV. Collection of sufficient information about the proposed venture.
V. Succeeding in the market.

I. Preliminary Evaluation:
As soon as the entrepreneur has selected his product, he has to evaluate
the business opportunities involved. The criteria for evaluation are;

1. Is opportunity compatible with the promoter: The entrepreneur must

confirm that the project undertaken should be compatible with men,
machine, material, money and the market available at his disposal.
Projects beyond the capacity of the entrepreneur are bound to fail.
2. Compatibility with Govt. rules and regulations: Govt. rules and
regulations should not be violated. The entrepreneur must take into
account all rules and regulations regarding investment, licenses,
reservation of items for certain categories, etc.
3. Easy availability of raw material: Cost and availability of raw
materials should be considered carefully. Scarcity of raw material will
cause delay in production process.
4. Potential market: Potential market, nature of competition,
competitors, availability of substitutes, barriers and the possibility of
 entry of further substitutes and technological developments taking
place in the industry are all to be considered.
5. Cost of the project: The cost of the project should be reasonable in
the sense that a desired profit margin should be realized from the
competitive price.
6. Inherent risk in the product: The inherent risk involved in the product
should also be analysed. Change in demand, technological
development, competitions, seasonal variations should be assessed
before working on a project.

After going through all this, one idea is to be selected.

II. Project Selection: Project selection starts with where project
identification ends. After having some project ideas, they are analysed in
the light of existing economic conditions and the government policies. A
tool used for this purpose is generally the SWOT analysis. Each project
idea is subjected to the SWOT analysis, to understand the strengths,
weaknesses and opportunities provided by each. On the basis of this
analysis, the most suitable project idea is selected and converted into an
enterprise. This is also called as the “zeroing in process”.

Project is a well evolved work plan designed to achieve specific objectives within a
specified period of time. The process of establishing an enterprise starts with
project or product identification. Project identification is done by generating
some project ideas. Each of these project ideas is then evaluated with the help of
a tool called “SWOT” analysis. Thus the idea found most suitable on the basis of
the analysis is finally selected to convert into an enterprise.

The following points should also be kept in mind while deciding upon the
product to be chosen: -
1. Potential demand for the product in the market.
2. Estimated volume of demand for the product or service.
3. Assess and estimate about potential competitors.
4. Study the scope for future demands.
5. Infrastructure facilities required such as power, electricity, transportation,
etc
6. Current status of technology and scientific development in the field.
7. Availability of raw material and required labour and skill in for the product.
8. Govt. policies, legislations. Controls.
9. Environmental factor.
10.Degree of profitability for the product.
11. Location advantages of the product.
12.Availability of ancillary units or small scale industries that require this
product. This increases marketability.
13.Availability of skilled and unskilled labour.

III. CONDUCT MARKET SURVEY OR PURPOSE OF MARKET SURVEY:

Market Survey with reference to the availability of raw material,
equipments, marketing and distribution and consumer behavior should
be conducted.
1. Raw material availability:
a. Search for leading suppliers of the raw materials required for
production.
b. Study the price policy of various suppliers and analyse impact of
price fluctuations on production.
c. Fix time for order execution.
d. Study local and outside sources of raw material – the advantages
and the disadvantages.
e. Analyze thoroughly the credit facilities, advance payments, terms
and conditions for suppliers.

2. Equipment availability:
(a) Identify major manufacturers at home and abroad.
(b) Compare the features of various manufacturers.
(c) Price structure of different brands.
(d) Analyze the repair maintenance and after sales service facilities of
manufacturers.
 (e) Look at the guarantees and warrantees by suppliers.
(f) Assess the technical and skilled staff requirements.
(g) Note the machinery delivery schedules.

3. Marketing & Distribution:

a. Selection of best channel of distribution.
b. Advertising and publicity programme of the product.
c. Product positioning.
d. Outstanding features of the product or service.
e. Market features and practices – credit facility, minimum order
quantity, incentives, etc.
f. Business terms and conditions., commissions, stocks,
warehouse facilities.

4. Consumer behavior:
a. Motivate buyers to buy new products.
b. Analyse the buyers’ purchase power.
c. Analyse the consumption pattern.
d. Understand the preference pattern, durability, service.
e. Understand the consumers’ characteristics of different region,
etc.

Steps in Identifying Business Opportunities:

I. Preliminary Evaluation:

The first step that an entrepreneur should take in his new enterprise is to
evaluate investment opportunities against specific criteria and select those that
are commercially feasible. These criteria are.

(a) Is opportunity compatible with the promoter: The entrepreneur must

understand that to make any enterprise successful, he has to deal with
 men, machine, material, money and the market. Projects that are beyond
the capacity of the entrepreneur are bound to fail.
(b) Compatibility with Govt. rules and regulations: Entrepreneurs should not
violate rules and regulations set by the Govt. He must find out all rules
regarding license, taxes, reservations, etc. Ignorance is no excuse.
(c) Availability of raw material: Cost and availability of raw material should be
considered carefully. Scarcity of raw material will cause delay in production
and may even lead to shut down.
(d) What is the size of the potential market: Potential market, nature of
competition, competitors, availability of substitutes, barriers and the
possibility of entry of fresh substitutes should be assessed by the
entrepreneur.
(e) Whether cost justifies the project: The cost of production should be
reasonable in the sense that a reasonable margin of profit can be realized.
(f) What is the risk inherent in the project: Every new enterprise carries with
it an element of risk. It should be found out whether the risk element is
reasonable.

II Selection of product or Service:

III. Conduct a Market Survey:

1. Raw material availability: The entrepreneur must search for locate a leading
supplier of the raw material that he needs.

(a) The price structure and impact on cost has to be studied.

(b) Settle the time for execution of order.

(c)Study the advantages and disadvantages of all sources of raw material.

(d) Analyze all terms of payment.

 2. Equipment availability:
(a) Major manufacturers of equipment in the country as well as abroad should
be identified.
(b) Compare the features of all the equipments.
(c) Study the price structure and availability of spare parts of each brand.
(d) Keep in mind the Guarantee and warranty of the equipments.
(e) Assess the requirement of technical and skilled personnel.
(f) Find out the delivery schedule of the machinery.

3. Marketing and Distribution:

(a) Select the best channel of marketing and distribution.
(b) Make definite advertising and publicity programmes for the product.
(c) Point out the outstanding features and plus points of the product.
(d) Assess the credit facilities, minimum order quantities, and other
commercial aspects.
(e) Identify commissions, stocks and warehouse facilities.

4. Consumer behaviour:
(a) Motivate buyers to buy your product.
(b) Analyse the buyers’ purchasing power.
(c) Analysis of consumption pattern to capture the major portion of the
market.
(d) Understand preferences, the durability, service required etc.

IV: Contractual programme to collect sufficient Information about proposed

venture:

Entrepreneurs need a great deal of information and guidelines, particularly in

the initial stage. This information can be had from Govt. Sources. Such
institutions as the Finance Corporation of India (IFCI), the Industrial Bank of
India (IDBI), Industrial Credit and Investment Corporation of India (ICIC), state
organizations and bank set up network of information.
V: Succeeding in the Market:

There is nothing like success to remain in business. The best way to be

successful is to produce what the customer wants. The following point are
guidelines to success in the market.;

(i) Study people and their needs before starting any project.
(ii) Identify unsatisfied needs. Design your product to satisfy the customer
in a better way than your competitor does.
(iii) Try to understand how your product is being received by the customer.
(iv) Always look for newer and better ways of reaching your customer.
(v) Employers must be positive in their attitude towards the product and
ensure that the employees also have such a feeling about the product.
(vi) Take constant feedback and remove any sort of dissatisfaction.
(vii) Constant research and development of the product as well as the taste
of the customer is very helpful.
(viii) Keeping ahead of your competitor through commitment and innovation.

BUSINESS:

Business means the state of being busy. Business involves activities concerned
with the production of wealth. It is an organized and systematic human activity
involving production and purchase of goods and services with the object of selling
them at a profit.

Definitions: “A business is any enterprise which makes, distributes and provides

any article or service which other members of the community need and are able
and willing to pay for.” - Urwick and Hunt.

1. “A single isolated transaction of sale and purchase will not constitute

business. Recurring or repeated transactions of sale and purchase alone
mean business.” - Peterson and Plowman
2. “Business is an enterprise engaged in production and distribution of goods
for sale in a market or rendering services for a price.” - Prof. Own
Thus, in essence, business is concerned with buying and selling goods,
manufacturing goods or providing services in order to earn profit.

CHARACTERISTICS OF BUSINESS:

1. Sale or transfer of goods for value:

Business involves sale or transfer of good or services for value. Production
of goods or services for personal uses does not come into the purview of
business.

2. Dealing in Goods & Services: Business implies dealing in goods and

services. The goods may be consumer goods like bread, cloth, watches, etc,
producer goods like tools, machinery or services which are goods that are
not stored but used by consumers.
3. Recurring of dealings: Business involves recurring or repeated transactions.
An isolated case of buying or selling does not involve in business.

4. Profit Motive: Profit making is the most powerful stimulus for doing
business.

5. Risk involved: Business involves risk. Business activities always focus on

the future which is highly uncertain. Profit depends upon the amount of
risk involved.

Requisites of a Successful business;

1. Clear Objectives.
2. Planning
3. Sound organization
4. Research.
5. Finance
6. Proper plant location, layout and size.
7. Effective management.
8. Harmonious relationship with employees.
Scope of Business;

Business is an all embracing term. It includes industry, commerce and trade. It is

concerned with the production of goods and services

BUSINESS PLANNING PROCESS:

Every business involves risk. Therefore it is necessary to plan the business before
venturing in to it. At the very outset, a cost and benefits analysis has to be done in
order to judge the viability of the project. Business involves employment of
resources. There are methods of appraising projects. They are;

1. Economic Analysis.
2. Financial Analysis
3. Market Analysis
4. Technical Analysis
5. Managerial Analysis.

I. Economic Analysis: Under economic analysis, aspects that are highlighted are
requirement of raw material, level of capacity utilization, anticipated sales,
anticipated expenses and the probable profit. Business should always envisage a
clear margin of profit. The volume of profit will govern other economic variables
such as sales, purchase and other expenses. Demand for the product also needs
to be clearly spelled out at the very initial stage.

The location of the project or business also needs to be considered. Govt. policies
in this regard need to be taken into consideration. Govt. offers specific
concessions and incentives for setting up industries and business in notified
backward areas. Therefore, it has to be ascertained whether the proposed project
comes under this category or not and whether the Govt. has already decided and
specific location for this kind of enterprise.

II. Financial Analysis:

Finance is one of the most important pre-requisites for establishing any business.
All other resources are facilitated by finance. Proper assessment of both fixed
capital as well as working capital requirement is to be made. Land, building, plant
and machinery are the common examples of fixed capital. All aspects of cost
such as remodeling, repair, maintenance and additions required are also to be
taken into consideration at the time of assessment.

Working capital means current expenditures or current liabilities. They are those
assets which can be converted into cash within a period of one week. Current
liabilities are those obligations that are required to be paid within one week.
Working capital is that amount of funds which is required for day to day business
operations. The assessment of working capital should be clearly provided for as
this is the money on which the day to day work runs. It is the blood line of the
company.

III. Market Analysis:

Before production starts, the entrepreneur has to have a fairly good idea of the
market for the product. He will have to anticipate who is likely to be his buyer and
in which area his product is most likely to be sold. It is necessary to know the
consumption pattern to have optimum profit. To find out the estimated
requirement, the commonly used methods are;

Opinion Polling Method

Life Cycle Segmentation Analysis.

I Opinion Polling Method:

In this method, the opinion of the ultimate users i.e., the customers are
estimated. It can be done either through the complete enumeration method, i.e.,
complete survey of all customers, or by the sample survey method, i.e., through
selective selection of a few customers.

Complete Enumeration Survey: In this survey all the probable

customer are approached and their view or demand for the product
are estimated and then summed. This is a very simple method as it
entails only the adding up of all the demands of all the customers.

Advantages: This is first-hand and unbiased information.

Disadvantage: To approach all the people scattered over a large area

of the market becomes tedious, costly and cumbersome. Consumers may not like
to divulge their personal choices due to personal reasons. They may not even be
aware of their choices.

Sample Survey: In this method only a small number out of the total
population is approached and data on their probable demand for the
product during the period under consideration is collected and
summed. The total demand of the sample customers is then blown
up to generate the total demand for the product.

Advantage: This method is less costly and tedious.

Disadvantage: This method may not give a real picture of exact

demand as opinions and views are randomly collected. The selected
customers may not be a true representative sample group for the
product.
 Sales Experience Method: Under this method a sample market is
surveyed before the product is released in the market. The results
are then projected for a total market in order to project anticipated
demand of the product.

Advantage: This is a relatively cheaper method.

Disadvantage: The survey market should be truly representative.

This is very difficult to get as there are many factors which keep
changing and over which the entrepreneur has little or no control.

Vicarious Method: Under this method, the consumers of the product

are not approached directly. Indirect agencies like dealers, who have
a pulse on the customers preferences are approached. The dealer’s
opinion about customers preferences is elicited.

III. Life Cycle Segmentation Analysis:

Every product has its own life span. Initially, the product sells very slowly.
With the application of sales promotion strategies over a period of time,
the demand increases. In due course of time, the peak selling period is
reached. After that time, the sales begin to decline. The demand finally
dies altogether. This is precisely why firms go in for new products, one
after the other, to keep the firm alive. Thus, the product cycle of a
product ca be classified into the following;

1. Introduction
2. Growth.
 3. Maturity
4. Saturation
5. Decline.

This can be shown as;

1 2 3 4 5

Product Life-Cycle.

1- Introduction
2- Growth
3- Maturity
4- Saturation
5- Decline

IV. Technical Feasibility:

While considering business, the technical feasibility of the project also

needs to be taken into consideration. Technical feasibility implies this
means the adequacy of the proposed project to produce products as per
proposed norms. It denotes the availability of raw material, technical and
working skill, proper equipment, and money. The following points need to
be kept in mind;
 1. Availability of land and site.
2. Availability of other inputs like water, power, transport,
communication.
3. Service facilities like repair shops, workshops etc.
4. Coping with anti-pollution laws.
5. Availability of required and skilled work force.
6. Availability of raw material as per requirement of quantity and
quality.

V. Management Competence:

Management competence and ability plays a very important role in

business. In the absence of management competence, projects which are
otherwise viable, will fail. Sometimes even a poorly devised project
becomes successful because of management competence. Research has
shown that most sick units have become so because of lack of managerial
skills. This is more so in the case of small-scale industries as it is usually a
one-man show and it becomes a jack of all trades and a master in none.

LOCATION:

Just like human movement, entrepreneurial movement is caused by social,

economic, political and cultural factors. The present day has seen great
fluctuations in the locality of enterprises. There are certain distinct features
which affect the pace and pattern of movement of location.

Factors influencing mobility:

1. Education: Education enlarges one’s thinking and understating

horizon. It helps people to understand things more quickly and in a
better way. Educated people can adjust to changing environments
more quickly and put things forth in a convincing manner. Educated
people are not afraid to move to better climates and situations.
 2. Experience: An entrepreneur’s past experience and ability to adjust
also makes him more prone to movement. An experienced
entrepreneur can better judge the situation and assess better
opportunities and weaknesses of a place and situation.
3. Availability of facilities: There is a tendency among entrepreneurs to
move from places with little or no facilities to those that offer better
and more plentiful facilities. They move to places that offer better
means of transportation, power, communication, natural resources.
And skilled labour.
4. Political conditions: Many a times political conditions becoming
unsuitable have also led to movement. Areas that have become
infected with terrorism and naxalism have seen great movement of
business away from the areas. During partition also, many Punjabis
left their homelands and sought out other less dangerous places.
5. Size of Enterprise: Large business houses find it difficult to expand
their existing business in the limited area in which they had earlier
built their enterprise. They then move on to areas that offer them
greater space and opportunities.
6. Inter-generation movement: This kind of movement happens when
the later generation moves away from the parental occupation of
earlier generation. They move places and enterprises all together.
7. Intra-generation movement: This kind of movement occurs when the
entrepreneur moves away from his own occupation. It may be in the
form of diversification or simply change in business.
Movement and settlement has been an integral part of human history Movement
to different regions help to reduce regional imbalances and also to make all round
economic development. However, there are many entrepreneurs who do not
move to other location. In such situations, there is concentration of industry of
one type in one region. Generally, however, movement is from more densely
populated areas to less densely populated areas. Movement is seen not only
within the country, but also internationally. That is why we see so many
international companies developing new branches in India. This may be in search
for better markets, lower labour costs, more skilled manpower and greater
availability of resources.
OWNERSHIP STRUCTURES:

There are various forms of business ownership or organizations. These are

generally based on comparative advantages and facilities available.

The different forms of ownership are;

1. Proprietorship: These are also called sole trade organizations. These are
the oldest form of business ownership in India. The enterprise is owned and
controlled by one person. He spends all the money, takes all the risks, calls
all the shots and reaps all the profit. When necessary, he takes the help of
his family members, relatives.
This is the easiest kind of organization to form. It does not require legal
recognition and other attendant formalities. William R. Basset says “ The
one man control is the best in the world, if he is big enough to manage
everything.”

Main features:

1. One man ownership

2. No separate business entity.
3. No separation between the ownership and management.
4. Unlimited Liability:
5. All profit or all losses to the owner.
6. Fewer formalities.
Advantages:

1. Simple form of organization

2. Owner has freedom to take decision.
3. High secrecy
4. Tax advantage. – taxed only once.
5. Easy Dissolution.

Disadvantage:

1. Limited resources.
2. Limited ability
3. Unlimited liability
 4. Limited life of enterprise form.

2. Partnership:

When persons come together, pool their resources, capital and skill
and organize a business, it is called a partnership. Partnership grows
essentially because of the limitations or disadvantages of proprietorship.
The India Partnership Act 1932 defines it as “The relation between persons
who have agreed to share the profits of business carried on by all or by any
of them acting for all”. According to J.L. Hanson, “a partnership is a form of
business organisation in which two or more persons up to a maximum of
twenty join together to undertake some form of business activity”.

Partnership is an association between two or more persons who have

agreed to share the profits of a business which they run together. The
business may be carried on by all or by any one of them acting for all. The
owners are called partners and the organization is called a firm.

Main features:

1. More persons form a partnership as against a proprietorship.

2. Profit and loss sharing.
3. Contractual relationship
4. Existence of lawful business charitable work is not considered a
partnership.
5. Utmost good faith and honesty:
6. Unlimited Liability:
7. Restriction on transfer of shares:
8. Principle-Agent relationship:

Advantages:

1. Easy formation. Legal formalities are nominal.

2. More capital available.
 3. Combined talent, judgment and skill.
4. Diffusion of risk.
5. Flexibility
6. Tax advantage- lower than on proprietorship.

Disadvantage:

1. Unlimited liability.
2. Divided authority.
3. Lack of continuity.
4. Risk of implied authority. Decision made by one is binding on all.

3.Company:

A company is an artificial person being created by the law and has an existence
separate and apart from its owner. It has a distinctive name a common seal
and a perpetual succession of members. It can sue and be sued in its own
name.

The India Company Act, 1956 defines a joint company as a company limited by
shares having a permanent paid up or nominal share capital of fixed amount
divided into shares also on fixed amount, held and transferable as stock and
formed on the principles of having in its members only the holders of those
shares or stocks and no other persons.

Lord Justice Lindley has defined a company as “an association of many

persons who contribute money or money’s worth to a common stock and
employ it for a common purpose. The common stock so contributed is
denoted in money and is the capital of the company. The persons who
contribute it or to whom it belongs are members. The proportion to which
member is entitled is his share.”

Or a company can be defined as an artificial person with a legal and

independent entity.
 Main merits:

1. Artificial legal person.

2. Separate legal entity:
3. Common seal: Being artificial, cannot sign. It uses a seal which is binding to
all.
4. Perpetual existence: - It is created by law and can be dissolved by law.
5. Limited liability: Liability is limited to the number of shares or stock held by
them.
6. Transferability of shares. Members can sell or transfer shares, within the
company’s rules.
7. Separation of ownership with management: directors are representatives
of the shareholders. Ownership is separate from management.
8. Number of members: In case of public limited company the minimum
number of members is seven and maximum is unlimited. For a private
limited company, the minimum number of members is two and the
maximum number of members is fifty.

5. Private & Public Company:

A private company is a company which by its Article of Association,

restricts the right to transfer the shares, if any; limits the number of its
members to fifty; and prohibits any invitation to the public to subscribe to
the shares or debentures of the company.

A public company I one which is not a private company. It is one which

places no restriction on the transfer of shares or on the maximum number
of members and which can invite the public to subscribe to its shares and
debentures and public deposits.
Distinctions between Private & Public Companies:

Basic Private Public

Members 2-50 7 – unlimited
Directors Minimum 2 Minimum 3
Prospectus Not necessary Filing is necessary.
Documents 2 members needed to sign Article 7 members needed to sign
of Association documents.
Allotment of May commence allotment of Cannot commence allotment of shares
shares shares before minimum before minimum subscription has been
subscription has been applied for. applied for.
Commencement Can commence business soon Cannot commence business without
after incorp. obtaining a certificate.
Transfers of Restricted by Article Freely transferable
shares
Filing of Balance Need not file Must file with Registrar of Companies.
Sheet
Statutory No need Must hold
Meetings
Directors No provision At least three directors

Advantages:

1. Limited liabilities
2. Perpetual existence
3. Professional Management
4. Expansion potential
5. Transferability of shares
6. Diffusion of risk

Disadvantages:

1. Lack of secrecy
2. Legal restriction
3. Management mischiefs
4. Lack of personal interest.
1. Co-Operative:
Co-operative is another form of ownership of business. This form is based
on the philosophy of self-help and mutual help. A co-operative line of
action aims at rendering serving in place of earning profits. Co-operative
organization is an association of persons, usually of limited means, who
have voluntarily joined together to achieve a common economic and
democratically controlled business organization, making equitable
contributions to capital required and accepting a fair share of risks and
benefits of the undertaking.

Main features:

1. Voluntary organization
2. Democratic management
3. Service motive
4. Capital and return thermo
5. Government Control
6. Distribution of surplus.

Advantages:

1. Easy formation
2. Limited liability
3. Perpetual Existence
4. Social service
5. Open membership
6. Tax advantage
7. State Assistance
8. Democratic Management.

Disadvantages:

1. Lack of secrecy
2. Lack of business acumen
3. Lack of interest
4. Corruption
5. Lack of mutual interest.

SELECTION OF APPROPRIATE FORM OF OWNERSHIP:

The best form of ownership is that which helps an entrepreneur attain the
business objective decided upon. The following considerations are to be
kept in mind;

1. Nature of business: Selection of appropriate form of ownership

depends to a large extent on the nature of the business. Business
requiring pooling of funds and skills are generally run on partnership
basis. Large scale production requires company form of business.
2. Area of operation: If the operation of a business is confined to an area
or locality, the appropriate form of ownership will be proprietorship
type. If the market is national and international, the company form of
ownership may be more suitable.
3. Degrees of Control: In case direct control over business is required, the
suitable form of ownership might be proprietorship.
4. Capital requirement: If business does not require a great deal of
capital, the kind of ownership hat might be acceptable is proprietorship.
5. Duration of business: If business is formed for a particular duration or
reason, proprietorship business would be better because it is much
easier to dissolve it.
6. Govt. rules and regulations: If an entrepreneur does not want much
govt interference, he should go in for proprietorship business.
7. Extent of risk and liability: Business involves risk. If the entrepreneur is
ready to bear all the risks involved, he can go in for proprietorship kind
of ownership.

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