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NIOS Class 10 Entrepreneurship Chapter 11 Setting up an Enterprise
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Setting up an Enterprise
Chapter: 11
Intext Questions 11.1
State whether the following statements are true false:
(i) Conducting the feasibility study is the first activity being performed in the process of setting up an enterprise.
Ans: False.
(ii) The sole proprietorship business is being owned and run by an individual or a sole trader.
Ans: True.
(iii) Hundred percent ownership and profits stay with the individual owner and so the decision taking authority.
Ans: True.
(iv) Sole proprietorship firm has a separate legal identity tothat of the owner.
Ans: False.
(v) Two or more persons enter into the partnership agreement, known as partners.
Ans: True.
(vi) In a partnership firm,there is no maximum limit for the number of partners.
Ans: False.
(vii) Limited Liability Partnership or LLP is a hybrid form of organisation which contains the features of both, the traditional partnership firm and company.
Ans: True.
(viii) A joint stock company is a group of individuals organised to conduct a business for a common motive of making profits.
Ans: True.
(ix) A joint stock company does not have a separate legal identity to its owners.
Ans: False.
(x) The formation of a public company requires at least seven members.
Ans: True.
(xi) A public company can invite the general public to subscribe toits shares and debentures, if required.
Ans: True.
Intext Questions 11. 2
State whether the following statements are true or false:
(i) Feasibility study is a systematic analysis that involves finding and documenting potential solutions to a particular business idea.
Ans: True.
(ii) Analysing the technical viability of the project is being dealt with technical analysis.
Ans: True.
(iii) Financial analysis needs to be conducted to check whether or not the business plan is compatible with the accessible technology.
Ans: False.
(iv) Commercial feasibility analysis evaluates the commercial aspects of the arrangement of the project.
Ans: True.
(v) Economic analysis does not involve evaluation of project in terms of cost and benefit analysis.
Ans: False.
(vi) The project report helps in effective decision-making and procuring funds from the market.
Ans: True.
(vii) Project report must contain a brief yet complete profile of the project the entrepreneur intends to deal with.
Ans: True.
Intext Questions 11.3
(i) Mention the documents that have to be submitted along with the prescribed format of registration of an enterprise.
Ans: (a) A copy of provisional registration certificate (PRC).
(b) A detailed project report.
(c) Certified copies in support of educational qualification, experience, and other information as applicable to various forms of entity.
(d) Applicable earnest money deposit.
(ii) Mention any four documents required for UAM Registration.
Ans: (a) Name and Aadhaar number of the business owner (as mentioned in the Aadhaar card).
(b) Document required as proof for SC, ST and OBC social category.
(c) Name of your organisation or enterprise.
(d) Previous registration details of your enterprise.
Terminal Questions |
1. Explain the process of setting up an enterprise in brief.
Ans: It involves a lot of commitment, patience, proper planning and a regressive process to convert what is there in your mind into a realistic entity. A determined entrepreneur is the most crucial aspect of every successful business project. In order to set up an enterprise, a suitable project has to be chosen. It involves a systematic feasibility study, preparation of project profile, strategic planning, deciding upon the constitution of the entity, preparation of project report, obtaining registration and clearance from related departments, resource mobilisation, obtaining funds and final implementation of the project. Based on the selection of product/ service to be offered, a project feasibility study has to be conducted and a brief product profile is made on that basis.
2. List out various forms of business organisations.
Ans: The various forms of business organisations are:
(i) Sole Proprietorship: Sole proprietorship is the simplest and oldest form of enterprise. It is also known as a sole trader or simply proprietorship. It is the type of business entity which is owned and run by one individual, which means 100 per cent ownership and profits stay with the owner and so the decision taking authority. In sole proprietorship there is no legal distinction between the owner and the business. Many businesses starts as a sole proprietorship and get converted into huge corporation later. Companies like Coca-Cola, Apple, Google, Amazon, and Disney started as sole proprietorships.
(ii) Partnership Firm: The Partnership Act, 1932 defines partnership as,“the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all.” In other words, a partnership is a form of organisation in which two or more persons share the ownership and thereby profits or losses generated in the business entity. Persons who enter into a partnership agreement are called the partners.
(iii) Limited Liability Partnership Firm: Limited Liability Partnership or LLP is a hybrid form of organisation which contains the features of both, the traditional partnership firm and company.It is an alternative corporate business form which offers benefits of limited liability to the partners at lower compliances costs. An LLP is a legal entity, liable for the full extent of its assets. However, the liabilities of its partners are limited. Further, no partner shall be liable on account of the independent or unauthorised actions of other partners in the firm. Thus, LLP allows individual partners to be shielded from liabilities created by another partner’s wrong business decisions or misconduct.
(iv) Joint stock company: A joint stock company can be formed under the Companies Act 2013. A registered company is incorporated as a separate legal entity, with a distinct name, common seals,and perpetual succession with the limited liability of individual share-holders or members. As an independent legal entity, the joint stock company enjoys the status of an artificial legal person, which means it can sue some other party or can be sued in its own name.
3. Describe various criteria kept in mind at the time of choosing a suitable form of organisation.
Ans: A prospective entrepreneur should properly analyse various form of organisation to identify the one that suits his/her business idea in the best possible way. The choice has to be made at the time of setting up the business entity.
The choice could be derived by several factors including:
(i) Nature of business.
(ii) Size and scale of operation.
(iii) Capital requirement.
(iv) Degree of control desired by the promoter.
(v) Degree of risk and uncertainty the owners are ready to bear.
(vi) Life span of the enterprise desired by the owners etc.
4. What do you understand by feasibility study? Explain in detail.
Ans: Feasibility study is a systematic analysis that involves finding and documenting potential solutions to a particular business idea. The feasibility study is done to check whether the business plan is compatible with the accessible technology or not. In other words, it is an analysis and evaluation of the proposed business idea to identify if itis technically feasible. The feasibility study involves a targeted market analysis, technical analysis, financial analysis, economic analysis and commercial feasibility analysis, all are briefly discussed below:-
(i) Market Feasibility Analysis: The market feasibility study involves the analysis of the nature of market cost of production and overall cost of production, selling price and profits, market demand, target market, market share etc.
(ii) Technical Feasibility Analysis: Technical feasibility analysis deals with analysing the technical viability of the project. In this study, efforts are made to review the infrastructural facilities like land, building, transportation, availability of raw material, locational advantages and disadvantages, evaluation of technical knowhow, labour force requirement and project schedule.
(iii) Financial Feasibility Analysis: The feasibility report should take into account the expected income generated, taxation liabilities as per the applicable tax laws, income tax rebates for priority industries, incentives for backward areas, expected depreciations in line with the industry it belongs to etc.
(iv) Commercial Feasibility Analysis: Commercial feasibility analysis evaluates the commercial aspects of the arrangement of the project. It also examines the arrangement process of plant and machinery, procedure of selection of raw material suppliers, appropriate location for the plant and other commercial aspects of the project.
(v) Economic Analysis: Economic analysis involves evaluation of a project in terms of cost and benefit analysis. It is the most crucial aspect of evaluation of a business idea. It is the process of determining the efficiency of the project. It is also called Cost Analysis.
5. What do you understand from the project report?
Ans: A project is a temporary, unique and realistic business idea which is converted into a feasible and achievable plan. It is time-bound to achieve a set of prespecified objectives. Risk and uncertainty are the integral part of a project. All projects have to pass through different phases in its lifespan. These phases are broadly classified as conception phase, definition phase, planning and organising phase, implementation phase and clean-up phase.
Project report is an important document that describes the basic blueprint of the project. It summarises the variety of activities to be undertaken during the course of action. This report helps in effective decision making and procuring funds from the market. The project report contains all relevant information required for the business idea evaluation and project appraisal. Thus, preparation of a project report is of great significance for the entrepreneur. It essentially serves two crucial purposes.
6. Explain the content of the project report in brief.
Ans: The content of the project report are as follow:
(i) General Information: The project report must contain a brief analysis of the industry it belongs to. It should also contain details related to the type of proposed entity, its size, company profile, product/service profile, constitution of the company etc.
(ii) Product Profile: This section talks about the basic specification and features of the product. It should contain the product details like name of product/service, type of product/service, variants available, a brief description of the product/service etc.
(iii) Promoter Profile: It contains the promoters’ details like their name, age, educational qualification, address, contact details etc.
(iv) Project Description: The project report must contain a brief yet complete profile of the project the entrepreneur intends to work on. It includes a brief feasibility report, a brief description of technology/process selected for the project, capacity of the project, intended level of production to be attained etc.
(v) Location of Unit: The project should contain details like exact location of the unit,whether the property is leased or self-owned and locational advantage.
(vi) Market Survey: This section of the project report talks about the finding of the market survey conducted by the promoters to analyse the response of the targeted customer group towards the product/service intended to be introduced.
(vii) Funds requirement: The project report must contain details of the funds required. It includes quantum and type of funds required like working capital, fixed capital, sources of funding identified etc.
(viii) Other operational requirements: This section of the project report contains all other aspects which have not been covered in the previous heads viz. raw material cost, requirement of human resources and other operational costs.
7. What are the legal formalities an entrepreneur is expected to comply with to obtain the registration of the organisation?
Ans: The legal formalities an entrepreneur is expected to comply with to obtain the registration of the organisation are:
(i) Obtain Registration: The sole proprietorship does not have too many legal formalities. MSMEs usually choose to register with local/district industries centre for obtaining various facilities and incentives. In case there is more than one person involved, one can opt for setting up a partnership firm. In these firms, partners’ personal assets are also held responsible as their liabilities are unlimited. So, it might be risky. However, partnership firms are governed by the Indian Partnership Act, 1932 and the partnership deed which contains terms and conditions of the partnership contract.
(ii) Application Formalities: An application is a prescribed format for registration of an enterprise in which all the required details have to be duly filled and submitted along with the following documents:
(a) A copy of provisional registration certificate (PRC).
(b) A detailed project report.
(c) Certified copies in support of educational qualification, experience, and other information as applicable to various forms of entity.
(d) Applicable earnest money deposit.
(iii) Registration of MSMEs (UAM): Udyog Aadhaar Memorandum (UAM) is a one-page registration form which constitutes a self-declaration format under which the MSME will self-certify its existence, bank account details, promoter/ owner’s Aadhaar card details and other minimum information required. There is no fee for filling the Udyog Aadhaar Memorandum. Once the UAM is submitted, Udyog Aadhaar Number (UAN) is sent through e-mail.
8. List out various documents required to submit at the time of filing of application.
Ans: The required details have to be duly filled and submitted along with the following documents:
(a) A copy of provisional registration certificate (PRC).
(b) A detailed project report.
(c) Certified copies in support of educational qualification, experience, and other information as applicable to various forms of entity.
(d) Applicable earnest money deposit.
9. Write a short note on the following:
(a) Sole proprietorship.
Ans: Sole proprietorship is a popular business form due to its simplicity, ease of setup and comparatively less initial costs involved. A sole proprietor need only register his/her name to secure local license and can start his/ her business immediately.Taxation formalities for sole proprietorship is also very easy as the income generated during the course of business gets taxed only at the owner’s personal income tax rate with no major reporting requirements.
Salient Features of Sole Proprietorship:
(i) Single ownership.
(ii) No separate legal entity of the firm.
(iii) Unlimited liability.
(iv) One man control.
(v) Undivided risk.
(b) Partnership firms.
Ans: The Partnership Act, 1932 defines partnership as,“the relation between persons who have agreed to share the profits of business carried on by all or anyone of them acting for all.” In other words, a partnership is a form of organisation in which there is two or more persons share the ownership and thereby profits or losses generated in the business entity. Persons who enter into a partnership agreement are called the partners. The partnership may come into existence either as a result of expansion of the sole proprietorship firm or by means of an agreement between two or more people to join hands to form a partnership firm.
Salient Features of Partnership Firm:
(i) Two or more persons enter into the partnership agreement, known as partners.
(ii) A written or oral agreement.
(iii) Legal aspects are governed by the Indian Partnership Act, 1932.
(iv) Mutual consent to join hands among the partners.
(v) Unlimited liability of partners.
(vi) No separate legal entity of the firm.
(c) Limited Liability.
Ans: A traditional form of partnership firm suffers the problem of unlimited liability. Liability of the partnership firms extends right up to their personal assets. This makes regular partnership firms undesirable for most of the entrepreneurs. To settle up these issues a new form of organisation has been passed in January 2009 by the government of India, the Limited Liability Partnership to be governed under the Limited Liability Partnership Act, 2008.
Limited Liability Partnership or LLP is a hybrid form of organisation which contains the features of both, the traditional partnership firm and company. It is an alternative corporate business form which offers benefits of limited liability to the partners at lower compliances costs. An LLP is a legal entity, liable for the full extent of its assets.
Salient Features of Limited Liability Partnership Firm:
(i) It is a corporate body which has its own separate legal entity.
(ii) It enjoys perpetual succession unlike traditional forms of partnership.
(iii) It is governed by the Limited Liability Partnership Act, 2008. Also, the Partnership Act, 1932 is not applicable to it.
(iv) There has to be a minimum of two persons for its incorporation. However, unlike partnership firms, there is no limit of maximum members.
(v) Partners assume limited liability. f. If partners agree, LLP can have a common seal.
(d) Joint stock company.
Ans: A joint stock company can be formed under the Companies Act 2013. A registered company is incorporated as a separate legal entity, with a distinct name, common seals,and perpetual succession with the limited liability of individual share-holders or members. As an independent legal entity, the joint stock company enjoys the status of an artificial legal person, which means it can sue some other party or can be sued in its own name.
A joint stock company or association is a group of individuals organised to conduct a business for a common motive of making profits. The individuals have a joint stock of capital represented by shares owned in the company. These shares/ stocks are transferable by the members without the consent of the group.
(e) Private companies.
Ans: A private company is a company which has a paid up capital of one lakh rupees or above, as prescribed by its Articles of Association. However the Companies Amendment Act (2015) removes the minimum paid-up requirement. To form a private company, there must be at least two members. The maximum limit is 200 members. Also, these members are restricted in their rights to transfer their shares, if any. A private company cannot invite the public to subscribe for the shares or debentures of the company.
(f) Public holding companies.
Ans: A public company is any company, which is (i) Not a private company.
(ii) Has paid up capital of minimum five lakh rupees and higher, as may be prescribed.
(iii) Is a subsidiary of a company which is not a private company. The formation of a public company requires at least seven members and can invite the general public to subscribe for its shares and debentures, if required. Members are not restricted to transfer of their shares.
10. Explain the following feasibility analysis criteria in brief:
(a) Technical Feasibility Analysis.
Ans: Technical feasibility analysis deals with analysing the technical viability of the project. In this study, efforts are made to review the infrastructural facilities like land, building, transportation, availability of raw material, locational advantages and disadvantages, evaluation of technical knowhow, labour force requirement and project schedule.
(b) Financial Feasibility Analysis.
Ans: This involves assessing the risk and uncertainty involved in executing the project. The purpose of this analysis is to present some measures to assess the financial viability of the project. The feasibility report should take into account the expected income generated, taxation liabilities as per the applicable tax laws, income tax rebates for priority industries, incentives for backward areas, expected depreciations in line with the industry it belongs to etc.
(c) Commercial Feasibility Analysis.
Ans: Commercial feasibility analysis evaluates the commercial aspects of the arrangement of the project. It also examines the arrangement process of plant and machinery, procedure of selection of raw material suppliers, appropriate location for the plant and other commercial aspects of the project.
(b) Economic Analysis.
Ans: Economic analysis involves evaluation of a project in terms of cost and benefit analysis. It is the most crucial aspect of evaluation of a business idea. It is the process of determining the efficiency of the project. It is also called Cost Analysis.