Meaning and Definition of Entrepreneur:

The term entrepreneur is derived from the French word entreprendre which means, to undertake i.e. the person who under take the risk of new enterprise. In early 16th century, the Frenchmen, who organized and led military expeditions, were referred to as entrepreneurs.

ORGANIZATION

URGE

INNOVATION

SKILL RISK VISION ENTERPRISE GROWTH

MANAGEMENT

Definition:

According to Richard Cantillon, An entrepreneur is a person who buys factor services at certain prices with a view to selling its product at uncertain price. According to Mark Casson, Entrepreneur is a person who specialized in taking judgmental decision about the coordination of scarce resources.

Essential features of entrepreneur:

An entrepreneur shall have the following features and qualities to be considered a good or great entrepreneur.

1. Brain to plan A wise entrepreneur is an advanced thinker. He knows how to predict the future. With his prediction, he creates a plan. He organized his objectives and set his procedures to achieve those objectives.

2. Hands to do the plan An active entrepreneur executes his plan. He performs his procedures to attain and realize his objectives. He handles well his people and put them in the right places.

3. Mouth to communicate and convince A good entrepreneur has wisdom to communicate. He says what is just and honest. He knows how to convince people. He does it by keeping his promises.

4. Eyes to see to it A prudent entrepreneur sees things twice. He is discreet and avoids biased and harsh decisions that will hurt other people. He also monitors and checks his business activity to ensure that they are running the way he wants it to be.

5. Ears to spy An extensive entrepreneur observes and studies his competitors. But he doesnt analyze them to hurt and defy them. He analyzes them to come up with greater products and services that will serve his customers better. He also studies his competitors to promote more quality and customers satisfaction inside the market competition. He encourages his competitors to produce greater quality products and services to eventually make the consumers the winners in the market competition.

6. Nose to smell danger A vigilant entrepreneur oversees his business surroundings. He searches and detects possible risks and dangers.

And when he detects one, he comes-up with a preventive solution if the danger has not yet occurred and a corrective solution if the danger has already occurred.

7. Skin to protect A caring entrepreneur protects his business, his employees and his consumers. He defends his business, his name and his integrity. He also preserves the wellness of his employees. And finally he totally cares for the satisfaction of his costumers.

8. Heart to love and create good relationship A loving entrepreneur practices patience, shows humility, rejoices in the truth, avoids evil acts, maintains hope and uplifts faith. He also keeps real good relationships with his employees, co-owners, investors, creditors, debtors and customers.

9. Feet to stand A strong entrepreneur stands firmly in the midst of trouble. And when he falls down, he always manages to get back on his feet. Simply, he is not a quitter.

10. Spirit to live A faithful entrepreneur believes in what he does. He lives in what he believes. He exists more than he lives

Characteristics of Entrepreneur:
Entrepreneur is a key player in economic progress. He is the person who introduces new things in the economy. He is considered as the business leader and not as simple owner of capital. He is a person with telescopic faculty, drive and talent who perceives business opportunities and promptly seizes them for exploitation. However, to be successful, an entrepreneur should have the following characteristic. 1. Need to achieve: Entrepreneurs have got strong desire to achieve higher goals. Their inner self motivates their behavior towards high achievement. 2. Independence:

Entrepreneurs start on their own because they dislike to work for others. They prefer to be their own boss and want to be responsible for their own decisions.

3. Risk-Bearing: Entrepreneurs are the persons who take decisions under uncertainty and thus they are willing to take risk, but they never gamble with the results. 4. Locus of control: Entrepreneurs believe in their own ability to control the consequences of their endeavor by influencing their socio-economic environment rather than leave everything to luck. They strongly believe that they can govern and shape their own destiny. 5. Determination: Entrepreneur has got the quality of sticking to job he decides to undertake. They work sincerely until the whole project is successfully implemented. 6. Positive self-concept: Entrepreneurs are always positive in their action. Being an achiever, he directs his fanatics and dreams towards achievement of worthwhile goals and sets extraordinary standard of excellence in what he is doing. This is based upon his awareness of SWOT analysis. 7. Flexibility: Most of the successful entrepreneurs measure the pros and cons of a decision and tend to change if the situation demands. They never feel reluctant to revise their decisions. 8. Sense of Efficacy: Entrepreneurs are always oriented towards action for accomplishment of their goals. Being confident of their abilities, they find themselves as problem solvers rather than problem avoiders.

Qualities and Skills of an Entrepreneur:

What skills are needed to be an entrepreneur? There are many skills that entrepreneurs develop over time, but there are a few skills that every entrepreneur must have before opening their doors for business. A successful entrepreneur has start with these skills. 1. Self-Motivation:

People who start their own businesses have typically worked in a larger organization and have enjoyed that mount of control and autonomy that selfemployment gives them, when they see the direct rewards for their labor, they are motivated to setup their own business. Money is also a big motivator. Many top entrepreneurs have had unhappy experiences in childhood, and are motivated by something negative. They want to go on and prove that they can succeed, and are driven by control and power. And while those negative experiences may drive many to set up their own businesses in the first place, motivation grows with the enterprise; those who run small businesses generally do so because their work is also their passion.

2. Self-Confidence: o Every entrepreneur needs to be confident in themselves their product and their business. o Ones needs to know that his product can truly help people and the price is charged are fair to him and his clients. 3. Ethics and Morals: o Ethics and morals are the foundation of every good entrepreneur. o Early on one must decide what he and his business will stand for and what lines he will refuse to cross. o Many entrepreneurs close their doors because the dollar outshines their morals. o If one stray too far from his morals he will give himself and his business a bad name. o No one wants to do business with someone who will not stand up for his own morals 4. Time Management:

One should schedule his day and stick to that schedule. This cannot be emphasized enough.

New entrepreneurs need to realize that every minute is valuable. When first starting out, most likely one will not have enough work to fill an eight hour day. This does not mean that he has time to take a three hour lunch with friends. He should utilize this time to learn more skills related to his business, find ways to advertise and contact potential clients.

5. Sales:

No matter how much you do not like the idea of it, every business has to work with sales. Each industry and business has a unique way of handling its sales. As an entrepreneur, it is his job to figure out what type of sales he will prefer and what type is best for his services or products. If he had ever worked in retail sales or advertising he already has an edge on most other hopeful business people. All entrepreneurs will benefit from sales seminars, books and motivational programs.

6. Financial Knowhow: When in business, knowledge of finance is a must. Knowing how to balance a check-book and keep track of numbered invoices is all most small businesses need to start out. The most important aspect of small business finance is scheduling time specifically for the finance management. Granted it helps to have an accounting degree or extensive quick book knowledge but these skills are not mandatory.

Functions of Entrepreneurs:
Functions of Entrepreneur

Primary Function

Entrepreneurs Function

Functions Important for Developing Countries

Other Functions

1. Planning

1.Idea generation

Diversification Of production

2. Organization

2.Determination of objectives 1.Mgt of share resource 2.Expansion Of the enterprise

3. Decision-making

3.Raising of funds

2.Dealing with public 3.Maintaining Bureaucracy cordial employer and employee

4. Management

4.Procurement of raw materials 3.Acquiring and

Assembly of the factory 4. Tackling labor 5. Innovation 6. Risk bearing 5.Procurement of Machinery 4.Engineering 6.Market research 5.New product problem 5. Coordination with outside agencies 6.Parallel opportunities

7. Uncertainty bearing7.Determination of form of enterprise

8. Recruitment of manpower 7.Marketing 9. Implementation of the project 8.Management 9. Customer relation 10. Public bureaucracy] Primary Function: Entrepreneur performs various functions from the stage of starting and enterprise to its success level. These functions are in sequential manner and are as follows. 1. Planning: Planning is the first step in the direction of setting-up of an enterprise. Entrepreneur prepare blueprint of proposed project in a formal systematic format. It is submitted to the authorities concerned for obtaining the legal sanction for the venture.

Planning process involves the following steps. Scanning of the best suitable idea. Selection of product line Determination of type of business organization Estimation of the capital needed Selection of capital resources. Selection of location Studying the government rules, regulation, and policies. Selecting the way fulfill the government formalities. Study of availability of labor force. Study of market and market strategy to be adopted.

2. Organization: An entrepreneur coordinates, assembles, and supervises land, labor and capital during the promotion stage and at the performance stage, for optimum utilization of the resources. Efficient expansion and growth of the enterprise largely depends on the efficiency of the organizational network employed and monitored by the entrepreneur.

3. Decision-making: Author H.Cole has described the entrepreneur as a decision-maker. As a decision maker he takes various decisions regarding following matters. Determination of the business objectives of the enterprise. Decision regarding procurement of machine, material, men, money, and market. Decision regarding requisition of efficient technology and new equipments. Decision regarding development of a market for the product.

 4. Management:
o

Maintenance of good relations with public authorities and with society at large.

The management with reference to entrepreneur stands for not only the working for the venture but also managing of the day-to-day problems.

o It includes future expansion and policies in the long run. o Direction of men, machine, material, money, organizing of land, labor, and capital for the enterprise. 5. Innovation: Innovation implies doing of new things or doing of things that are alreasy being done in a new way. Schumpeter considered economic development as a desired dynamic change brought by entrepreneur by instituting new combinations of production. According to him innovation may occur in any one of the following five forms. 6. Risk-bearing:

Launching of new product in the market. Introduction of new technology in the production, Creation of new market. Discovery of new and better source of raw material Restructuring the organization.

An entrepreneur undertakes the responsibility for loss that may arise due to unforeseen contingencies in future. They guarantees interest to creditors, wages to labor, and rent to the landlord and risk can be insured.

7. Uncertainty-Bearing:

Risk which cannot be insured against and it is incalculable. Entrepreneur bears uncertainty.

It refers to the uncertain trends of market, trade credits, etc., which by its nature cannot be insured, neither capitalized nor salaried too.

Entrepreneurs Function: 1. Idea Generation: This is the most important function of the entrepreneur. Idea generation can be possible through the vision, insight, observation, experience, education, training and exposure of the entrepreneur. Idea generation precisely implies product selection and project identification. Ideas can be generated through environmental; scanning and market survey. It is the function of the entrepreneurs to generate as many ideas as he can for the purpose of selecting the best business opportunities which can subsequently be taken-up by him as a commercially viable business venture.

2. Determination of Objectives: The next function of the entrepreneur is to determine and lay-down the objectives of the business, which should be spelt-out on clear terms. In other entrepreneur should be very much about the following things: a. The nature of business and b. The type of business. 3. Raising of Funds: Fund raising is the most important function of an entrepreneur. All the activities of a business depend upon finance and iits proper management. It is the responsibility of the entrepreneur to raise funds internally as well as externally. In this matter, they should be aware of the different government sponsored schemes such as PMRY, SGSY, REGP, etc., by which they can get government assistance in the form of speed capital, fixed and working capital for his business.

4. Procurement of Raw materials:

Another important function of the entrepreneur is to procure raw materials.

Entrepreneur has to identify the cheap and regular sources of supply of raw materials, which will help him to reduce the cost of production and face the competition boldly.

5. Procurement of Machinery: The next function of the entrepreneurs is to procure the machineries and equipments for establishment of the venture. While procuring the machineries, they should specify the following details. The details of technology Installed capacity of the machines. Names of the manufacturers and suppliers, Whether the machines are indigenously made or foreign made, After-sales service facilities, and Warranty period of the machineries.

6. Market Research: The next important function of entrepreneur is market research and product analysis. Market research is the systematic collection of data regarding the product which the entrepreneur wants to manufacture. Entrepreneur has to undertake market research persistently in order to know the details of the intending product, i.e., the demand for the product, the supply of the product of the price of the product, the size of the customers,etc., while starting an enterprise.

7. Determination of Form of Enterprise: The function of an entrepreneur in determining the form of enterprise is also important. Entrepreneur has to decide the form of enterprise based upon the nature of the product, volume of investment, nature of activities, types of product, quality of product, quality of HR, etc.

The chief forms of ownership organizations are sole proprietorship, partnership, joint stock Company, and cooperative society. Determination of ownership right is essential on the part of the entrepreneur to acquire legal title to assets.

8. Recruitment of Manpower: Entrepreneur has to perform the following activities while undertakings these function: Estimating manpower need of the organization Laying-down of selection procedure. Devising scheme of compensation. Laying-down the rules of training and development.

9. Implementation of the project; o Entrepreneur has to work on the implementation schedule or the action plan of the project. o The identified project is to be implemented in a time-bound manner. o All the activities from the conception stage to the commissioning stage are to be accomplished by him in accordance with the implementation schedule to avoid cost and time over-run, as well as competition. o Thus, implementation of the project is an important function of the entrepreneur. Functions Important for Developing Countries: The function s of an entrepreneur with reference to the under-developed countries includes wide range of activities has been provided by Kilby, which are as follows: Management of Scarce resources Dealing with public bureaucracy Acquiring and overseeing assembly of the factory. Industrial designing and engineering. Marketing of product and responding to competitions. Industrial new product.

Perception of market opportunities. Financial and production management. Management of customers and suppliers relations and Management of scarce resources.

Other Functions: Besides the above functions the entrepreneurs has to perform many other activities at the later stage which are as follows: Diversification of Production Expansion of the enterprise Maintaining cordial employer-employee relations. Tackling labor problems and Coordination without side agencies.

Entrepreneurship in India and Abroad:

Entrepreneurship in India: 1. Agriculture was and has always been the dominant occupation of the people in India. But even in ancient times, many Indian products enjoyed worldwide reputation. Notable among those were: the Muslims of Dacca, calicos of Bengal, exquisite sarees of Banaras, Dhotis and dupattas of Ahmedabad, woolen shawls of Kashmir and aromatic spices of Kerala.
2. Historically, in pre-eminently agrarian countries, as was India, affluent people-e.g., rajas,

nawabs, and landowners- considered land ownership as a means of social and political power. They, generally, did not favor using their cash supplies in risky long-term industrial investments. Besides, the culture of a poor country placed greater value on the construction of excessively decorated memorials and places of worship, and/or on repeated observance of social and religious ceremonies. These activities required money, but they did not serve any productive economic purpose.
3. In the absence of organized banking facility, scattered small savings of the public could

not be channelized for investment in industrial development. The few with entrepreneurial spirit, even if they existed, were discouraged from starting risky ventures because of technological barriers and inability to secure required capital.

4. Further, while under long British occupation, colonial apathy, lack of infrastructure, non-

existence of capital market, shortage of investable finance for investment and nonavailability of technical know-how posed hurdles in the process of industrialization in India. Despite the availability of manpower skilled in metal craft in early times, Indias metal manufacturing activity remained a cottage industry for a long time.
5. In the early 19th century, some attempts were made, mostly by the European businessmen,

to set-up mechanized processing operations. Among them, major efforts were made in 1815 with the first iron-smelter in TamilNadu in 1818 with first cotton mill near Kolkata, in 1820 with the first coal mining in Ranigunj and in 1823, with the first coffee plantation in TamilNadu. 6. Around the mid-nineteenth century, Britain as the leading industrial nation and the major trading country dominated the world economy. To support its expanding industries and meet the needs of its growing population, Britain depended heavily on the increasing supply of imported raw materials. Eventually, many Englishmen moved to different British colonies and engaged themselves in various business operations there. Thus British colonies were utilized to ensure that they provided not only the raw materials for Britains industries, but also markets for British products.
7. Jute processing, already a well-established cottage industry in Bengal, was modernized

by the English and some Scotch enterprises in 1854. The first mechanized textile mill, Bombay Spinning & weaving Company, was founded in Maharashtra by a parsi entrepreneur in 1854. The beginning of mechanization of coal mining in 1870 further paved the way for expansion of modern factory system in India. In 1875, first attempts were made to produce steel by modern technique. In 1892, Professor Prafulla Chandra Roy started in Calcutta, a chemical and pharmaceutical plant, which later became famous as Bengal Chemical & Pharmaceutical Works Ltd.
8. Gradually, more Indian entrepreneurs set up mechanized modern factories and notable

among those were Indias first modern iron and steel mill built at Jamshedpur by Tata Iron Steel Company in 1908 and another iron and steel plant at Burnpur by Indian Iron Steel Company in 1919. The First World War led to a sharp decline in imports from Britain and other countries. During this period, the British administration granted some protection to a few Indian industries.
9. Following the First World War, the British entrepreneurs started taking more care in

furthering the growth of their commercial establishments in India. And in this direction, they introduced, among other things, the managing agency system in India. The managing agents played an all-in-one role for they assumed the entire task of providing finance, setting-up and managing industrial units, identifying new opportunities and also selling products to customers. In those days promoters, financers, and qualified

managers were not readily available and hence the acceptability of the managing agency system.
10. The Second World War also created favorable conditions and provided stimulations for

further growth a number of Indian industries engaged in the production of both the consumer and capital goods. Before Independence, a vast majority of Indian entrepreneur were mainly from leading traditional Indian business communities, primarily Parsi, Guajarati, Chettiar, and Marwari. Current Entrepreneur Scenario in India:

According to the global Entrepreneurship Monitor report, Indias High-Growth Expectation Early-stage Entrepreneurship (HEA) rate is only one-fifth of that of china. Further among medium and low income countries while Chinas nascent and new entrepreneurs appear to be the most growth-oriented, with more than 10% of them anticipating high growth. Early-stage entrepreneurial activity in India is marked by low levels of growth expectation. This is despite the extremely high levels of potential entrepreneurial activity as perceived by the non-entrepreneurially active population in the country. While data on entrepreneurship is hard to come by, the following numbers are telling. According to the NSS 62nd round, in rural India, almost 50% of all workers are selfemployed; 57% among males and nearly 62% among females, while the corresponding figures in urban India are 42 for males and 44 for females. The NSSO defines a self-employed as an employer or worked in household enterprises as helper. The essential feature of the self-employed is that they have autonomy and economic independence for carrying out their operation. According to the 5th Economic Census conducted by the Central Statistical Organization, there are 41.83 million establishments in the country engaged in different economic activities other than crop production and plantation. Five states i.e., Tamil Nadu, Maharashtra, West Bengal, Uttar Pradesh and Andhra Pradesh together account for about 50% of the total establishments in the country. The same five states also have the combined share 50% of total employment.

Entrepreneurship in Abroad: Entrepreneurship and Great Britain: The industrial Revolution in Britain was made possible by the pioneer entrepreneurs, who helped to open up a new line of thought on industrial development. They demonstrated their sense of market opportunities and ability to tap and utilize such opportunities. During this period, successive major technological inventions and simultaneous entrepreneurial innovations accelerated the process of industrial development in Britain. The cotton textile manufacturing industry made a substantial progress and this was largely because of the innovative use of use steam power and new machinery that replaced handlooms. The development of textile technology motivated inventions and growth in Britains machinery industry and factory system as well. The expansion of machinery industry was feasible only after advancement of technologies in metal and metal-using including iron and steel industries. The introduction of cast-iron rails replacing wooden rails, subsequent improvement in railway system and simultaneous development of roadways and waterways expedited the extension of Britains transport industry. Enhancement in agricultural productivity was made possible by intensive cultivation of land and introduction of agricultural innovations.

Entrepreneurship and United states:

The great Industrial Revolution in Britain and the changes that took place there set the path which several countries followed for their economic progress. Oliver Evans, who invented machines to speed-up the milling of flour, was among the early entrepreneurs who helped to develop the American factory system. The mechanized factory system introduced in the 1790s was the beginning of the transformation of the American economy.

Samuel Slater, an English Immigrant, who brought with him memorized plan of a textile plant, started a mechanized cotton thread production unit in Rhode Island. With the basic technology secretly imported from Britain and adapted by the local entrepreneurs, mechanization of American textile industry began, somewhat moderately though, in Waltham, Massachusetts in 1813.

Entrepreneurship Definition:
According to A.H.Cole, Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or aggrandize profit by production or distribution of economic goods and services. Entrepreneurship = Entrepreneur + Enterprise

(Process)

(Person)

(Object)

Forms of Entrepreneurship:
Entrepreneurship can be of two types: 1. Small Business Entrepreneurship. 2. Corporate Entrepreneurship Small Business Entrepreneurship: A small Business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales, small business are normally privately owned corporations, partnerships, or sole proprietorships. The official definition of small business by the government of India is as follows: 1. Small Scale Industries: A unit in which investment in plant and machinery does not exceed rupees five crore. 2. Ancillary Units: An undertaking which sells not less than fifty percent of its output to other industrial undertakings and in which investment in plant and machinery does not exceed rupees five crore.

3. Export-Oriented Units: A unit which exports not less than thirty percent of its output and in which investment in plant and machinery does not exceed rupees five crore.

4. Tiny Units: A unit with an investment in plant and machinery of not more than rupees twenty five lakh.

Importance of Small Business in Indian Economy:

India is largely an agricultural country and major part of the population lives in villages, small scale industries are small in size but play a big role in the economic development of a developing country like India. India has adopted the ideal of a socialistic pattern of society with full employment, balanced regional development and self-reliance as the major objectives. Small scale firms are helpful in the achievement of these goals in the following ways. 1. Employment: o Small-scale firms use labor-intensive techniques and therefore, they have potential to provide employment to a larger number of people per unit of a capital.
o

For every worker employed in large scale industries about three workers are engaged in small-scale and cottage industries.

o Next to agriculture small business constitutes the most popular occupations of people in India.
o

Small firms promote self-employment particularly among the educated and professional class.

o They also provide employment to agriculturists who remain idle during a part of the year.
o

In fact, the healthy growth of small-scale industries can be an effective approach to the pressing problem of unemployment in the country.

o Several empirical studies have revealed that the employment generating capacity of small-scale industries in about in times more than that of the large-scale industries. 2. Balanced Regional Development: o Small-scale industries promote decentralized development and help to remove regional disparities in industrialization.
o

Decentralized development contributes to the process of self-sustained growth and avoids concentration of industries in particular areas. By providing employment in rural areas they help to check migration and overcrowding in urban areas.

o Small-scale firms can be a useful means of rural re-construction and development. o Development of decentralized sector also improves the standard of living of people backward regions. 3. Optimization of Capital: Small scale firms require less capital per unit of output and, therefore, greater output can be obtains with small investment. The Annual survey of Industries revealed that fixed capital per employee in case of small scale industry was Rs.3, 706 as compared to Rs.27, 757 in case of large scale industry. Small firms also provide quick returns after their establishment on account of short gestation period. In India, where the rate of capital formation is low, small scale industries are very suitable.

4. Mobilization of Local Resources:

Small scale industries facilitate mobilization and utilization of local resources and skills which mi9ght otherwise remain latent or unutilized. Small business promotes a new cadre of small entrepreneurs and selfemployed and encourages local talent. The growth of small enterprises helps in tapping latent resources like entrepreneurial skills and small savings especially in rural areas.

Small scale industries account for ninety five percent of the industrial units in India and contribute almost forty percent of the gross industrial value added.

5. Exchange Earnings: Small scale industries help in reducing pressure on the countrys balance of payment in two ways. 1. They do not require imports of sophisticated machinery and equipment. 2. They earn valuable foreign exchange through exports of non-traditional items and substitutions imports through domestic production. Small scale industries account for forty five percent of total exports from India. 6. Feeder to Large Industries: Small scale sector is complementary to the large scale industries. Small scale industries manufacture several of components, spare parts, tools and accessories which are required by the large scale sector. Small firms also distribute the goods produced by large scale firms.

7. Opportunity for Artisan: In villages. Artisan/specialist/artist having expertise in different fields are found. Because of lack of opportunities their skills do not come into limelight. Small businesses provide opportunities to such people. This provides am impetus to their talent.

Types of Ownership:
Entrepreneurs have a number of legal forms of business top choose from, such as sole proprietorships, corporations, partnerships, or Limited Liability Companies (LLCs). Entrepreneurs should determine which business form is best for them based on their short-long-term needs. Because there are significant tax and non-tax differences among the forms, entrepreneurs should carefully consider the results and requirements of each form to ensure that the business form they choose best meets their requirements.

In choosing a form of ownership, entrepreneurs must remember that there is no single best form, what is the best depends on the businesss particular circumstances.

Ownership can be classified into two categories as shown.

Business Ownership Individual Ownership Collective Ownership Partnership Cooperative Enterprise Joint stock company

Sole Proprietorship

Family Business

Sole Trading/Sole Proprietorship:

Sole proprietorship is a one-man business. It is the form simplest, the oldest, and in some respects the most natural form of business in the private sector. In this form of business, a single individual is solely responsible for providing the capital, for bearing the risks, and for the control of the enterprise. It is a one-man show. Sole proprietorship means a business owned, financed and controlled by a single person. The owner, called the proprietor, alone is responsible for the profits and losses of the business. If entrepreneurs plan to start a business under a name other their own, they must register the name, called DBA (doing business as). If the business has a tradename, a Certificates of doing business under a Assumed name can be obtained from the state in which the business will operate.

According to L.H.Haney, The individual proprietorship is the form of business organization at the head of which stands an individual as one who is responsible, who directs its operations, and who alone runs the risk of failure. According to J.L.Hansen, Sole trader business is type of business unit where one person is solely responsible for providing the capital, for bearing the risk of the enterprise, and for the management of business.

Features of Sole Proprietorship: 1. Single Ownership: A Sole proprietorship is wholly-owned by one individual. The individual supplies the total capital from his own wealth or form borrowed funds.

2. One-man Control: The proprietor alone takes all the decisions pertaining to the business. He is not required to consult anybody. Ownership and management are vested in the same person. Some persons may be employed to help the owner but ultimate control lies with him.

3. No Separate Legal entity:

A Sole Proprietorship has no legal identity separate from that of its owner. The law makes no distinction between the proprietor and his business. The business and the owner exist together. If the owner dies or becomes insolvent the business is dissolved. The proprietor and his business are one and the same.

4. Unlimited Liability: The proprietor is personally liable for all the debts of the business.

In case the assets are insufficient to meet its debts, the personal property of the proprietor can be attached.

5. No-Profit sharing: The Sole proprietor alone is entitled to all the profits and losses of business. He bears the complete risk and there is nobody to share the profits the profits or losses.

6. Small Size: o The scale of operations carried on by a sole proprietorship is generally small. o A sole trader can arrange limited funds and managerial ability. o Therefore, the area of operations is generally local and limited. 7. No Legal formalities: No legal formalities are required to start, mange, and dissolve sole trader business Only a license is necessary in certain types of business.

Partnership
Definitions (2) 1. A type of unincorporated business organization in which multiple individuals, called general partners, manage the business and are equally liable for its debts; other individuals called limited partners may invest but not be directly involved in management and are liable only to the extent of their investments. Unlike a Limited Liability Company or a corporation, in a partnership each partner shares equal responsibility for the company's profits and losses, and its debts and liabilities. The partnership itself does not pay income, but each partner has to report their share of business profits or losses on their return. Estimated payments are also necessary for each of the partners for the year in progress. Partnerships must file are turn on Form 1065 showing income and deductions. Estimated tax payments are also required if they expect their income to be greater than $1,000. 2. More generally, a relationship of two or more entities conducting business for mutual benefit.

Types of Partnerships A partnership arises whenever two or more people co-own a business, and share in the profits and losses of the business. Each person contributes something to the business -- such as ideas, money, or property -- though management rights and personal liability will vary depending on which of three modern partnership forms the business takes: general partnership, limited partnership, or limited liability partnership (LLP). General Partnerships A general partnership involves two or more owners carrying out a business purpose. General partners share equal rights and responsibilities in connection with management of the business, and any individual partner can bind the entire group to a legal obligation. Each individual partner assumes full responsibility for all of the business's debts and obligations. Although such personal liability is daunting, it comes with a tax advantage: partnership profits are not taxed to the business, but pass through to the partners, who include the gains on their individual tax returns at a lower rate. Limited Partnerships A limited partnership allows each partner to restrict his or her personal liability to the amount of his or her business investment. Not every partner can benefit from this limitation -- at least one participant must accept general partnership status, exposing himself or herself to full personal liability for the business's debts and obligations. The general partner retains the right to control the business, while the limited partner(s) do(es) not participate in management decisions. Both general and limited partners benefit from business profits. Limited Liability Partnerships (LLP) Limited liability partnerships (LLP) retain the tax advantages of the general partnership form, but offer some personal liability protection to the participants. Individual partners in a limited liability partnership are not personally responsible for the wrongful acts of other partners, or for the debts or obligations of the business. Because the LLP form changes some of the fundamental aspects of the traditional partnership, some state tax authorities may subject a limited liability partnership to non-partnership tax rules. The Internal Revenue Service views these businesses as partnerships, however, and allows partners to use the pass through technique. Existing partnerships that wish to take advantage of LLP status do not need to modify their existing partnership agreement, though they may choose to do so. In order to change status, a partnership simply files an application for registration as a limited liability partnership with the appropriate state agency. All states require disclosure of the partnership's name and principle place of business. Some states also require, among other things, identification of the number of partners, a brief description of the business, a statement that the partnership will maintain insurance, and written acknowledgment that the limited liability status may expire.

Types of Partners
The partners of a firm are broadly divided into three main categories.

(1) General Partners. (2) Special Partners. (3) Other Partners. (1) General Partners Basically all the partners of a firm are general partners. General partners we those whose liability is unlimited in the f General partners are of two types (a) Active partner, and (b) Sleeping partner. (a) Active Partner A partner who takes active part in the day to day management of the business is cared an active partner. An active partner (also called working partner) may work in different capacities such as manager, organizer, adviser, controller of all the affairs of the firm. The active partner is rewarded as per agreement between the partners. (b) Sleeping Partner A sleeping partner is one who contributes capital, shares profits and losses of the firm but takes no part in the day to day management of the affairs of the firm. A person, who has money to invest but cannot spare time for the business, may become sleeping partner. A sleeping partner is liable for the liabilities of the business like other partners. (2) Special Partners Special partners are partners whose liability is limited to the extent of their capital contributed in the firm. They are only found in limited partnership. The special partners cannot take part in the management of the business of the firm. In Pakistan limited partnership is not recognized. (3) Other Partners The other types of partners sometimes found in a firm are as follows. (a) Secret Partner A partner who takes active part in the affairs of a business but is not known to the public as a partner is called Secret partner. He, like other partners, is liable to the creditors of the firm to an unlimited extent He shares profits according to the agreement signed. (b) Nominal Partner nominal partner lends his name for the goodwill and credit worthiness to the firm. He neither contributes capital nor takes active part in the management of business. Such partners are called nominal partners. Nominal partners are liable for the debts of the firm. (c) Minor Partner Partnership is a contract and a contract with minor is void. Under Section 30 of Partnership Act, a minor is not able to enter into a contract and so he cannot become a partner of a firm. He can,

however be admitted to the benefits of a firm with the consent of other members and that too n a business which is already operating. His liability remains limited to the extent of his share in the capital. On attaining majority, he has to choose whether he has to continue as a partner or not. (d) Partner at Will type of partner will continue so long the partners have mutual faith, trust and confidence among them. (e) Partners in Profit Only If a partner is entitled to receive certain share of profit and is not held liable for the losses, he is known as partner in profit only. He is not allowed to take part in the management of the business. (f) Partner by Estoppels There is another minor type of partner which is called partner by estoppels. If person styles the character of a partner in a business before a third party (outsiders) by words or in writing or by his act, he is called a partner by estoppels. The third party mistaking him as a partner in the business advances loans on his creditability, that person would be personally responsible for the liability attaching to the position of a partner The partner by estoppels would, however, not be entitled to any right like other partners in the business. For example Mr. Hamid is a rich man and is not a partner in a firm named Three Star Carpets. Mr. Hamid makes a false statement to Mr. Rauf, that he is a partner of the firm Three Star Carpets. On this impression Mr. Rauf sells carpets worth Rs. one million to Three Star Carpets on credit. The firm is not able to pay the amount of Rs, one million. Mr. Rauf can recover the amount of Rs. one million from Mr. Hamid, Mr. Hamid here is a partner by Estoppels. Advantages of Partnership Capital Due to the nature of the business, the partners will fund the business with startup capital. This means that the more partners there are, the more money they can put into the business, which will allow better flexibility and more potential for growth. It also means more potential profit, which will be equally shared between the partners.

Flexibility A partnership is generally easier to form, manage and run. They are less strictly regulated than companies, in terms of the laws governing the formation and because the partners have the only say in the way the business is run (without interference by shareholders) they are far more flexible in terms of management, as long as all the partners can agree.

Shared Responsibility Partners can share the responsibility of the running of the business. This will allow them to make the most of their abilities. Rather than splitting the management and taking an equal share of each business task, they might well split the work according to their skills. So if one partner is good with figures, they might deal with the book

keeping and accounts, while the other partner might have a flare for sales and therefore be the main sales person for the business. Decision Making Partners share the decision making and can help each other out when they need to. More partners means more brains that can be picked for business ideas and for the solving of problems that the business encounters.

Disadvantages of Partnership Disagreements One of the most obvious disadvantages of partnership is the danger of disagreements between the partners. Obviously people are likely to have different ideas on how the business should be run, who should be doing what and what the best interests of the business are. This can lead to disagreements and disputes which might not only harm the business, but also the relationship of those involved. This is why it is always advisable to draft a deed of partnership during the formation period to ensure that everyone is aware of what procedures will be in place in case of disagreement and what will happen if the partnership is dissolved.

Agreement Because the partnership is jointly run, it is necessary that all the partners agree with things that are being done. This means that in some circumstances there are less freedoms with regards to the management of the business. Especially compared to sole traders. However, there is still more flexibility than with limited companies where the directors must bow to the will of the members (shareholders).

Liability Ordinary Partnerships are subject to unlimited liability, which means that each of the partners shares the liability and financial risks of the business. Which can be off putting for some people. This can be countered by the formation of a limited liability partnership, which benefits from the advantages of limited liability granted to limited companies, while still taking advantage of the flexibility of the partnership model.

Taxation One of the major disadvantages of partnership, taxation laws mean that partners must pay tax in the same way as sole traders, each submitting a Self Assessment tax return each year. They are also required to register as self employed with HM Revenue & Customs. The current laws mean that if the partnership (and the partners) bring in more than a certain level, then they are subject to greater levels of personal taxation than they would be in a limited company. This means that in most cases setting up a limited company would be more beneficial as the taxation laws are more favourable (see our article on the Advantages and Disadvantages of a Limited Company).

Profit Sharing Partners share the profits equally. This can lead to inconsistency where one or more partners arent putting a fair share of effort into the running or management of the business, but still reaping the rewards.

Joint Stock Company

Definition A company which has some features of a corporation and some features of a partnership. The company sells fully transferable stock, but all shareholders have unlimited liability.

Types of Joint Stock Company:

Types of Join Stock Company

Types of Joint Stock Company 1. Chartered Company: The companies that form by the order of the king of England are called the charter company. These companies were formed before 1844. For example, East India Company, Chartered Bank of England, the charter of the British South Africa Company, given by Queen Victoria 2. Statutory Company: Companies that are formed by the order of the President, or by the Legislative Committee or by bill of Parliament are called Statutory Company. These Companies are operated by those laws. For example, municipal councils, universities, central banks and government regulators, Central Bank. 3. Registered Corporation: Companies that are formed under the prevailing law of the company are called the registered company. The corporation that has filed a registration statement with the SEC prior to releasing a new stock issue. It is two types-

i) Unlimited Company: The liabilities of the shareholders of this company are unlimited. For example, British all-terrain vehicle manufacturer Land Rover, GlaxoSmithKline Services Unlimited. ii) Limited Company / Limited Corporation: The liabilities of the shareholders are limited. For example, charitable organizations, Financial Services Authority. This liability of a company can be of two types. a) By Guarantee b) By share value. The company limited by share can be of two types. Private Limited Company, where the number of shareholder ranges from two to fifty. The share of these companies cant be traded in the stock market. Public Limited Company, where the number of shareholder ranges from seven to share limitation. The share of the public limited company is traded in the stock market. Procedure of Formation of a Joint Stock Company In "Bangladesh" perspective (but the moreover same process all over the world) Joint Stock Company is formed, registered and guided by the Companies Act 1994. The promoters by themselves or by their appointed person (advocate, consultancy firm, or consultant) undertook the task of formation. However, the task of formation could be discussed in steps. 1. Promotional Steps: The person who undertook the task of formation is called promoter or entrepreneur. For Public Limited Company there should be at least seven (7) and for Private Limited company, there should be at least two (2) promoters. These promoters undertook the following tasks: a) Planning: Here the promoters decide about the objectives, area, type, capital structure of the new business. Based on these factors, the promoters go forward. b) Feasibility Analysis: Here the promoters undertook the feasibility analysis for the new venture: both from existing and potential view point. Promoters undertook different tools like SWOT (Strength, Weakness, Opportunity and Threat) Analysis; Competitive Analysis, etc. Being assured of the potentiality of the business the promoters go for the further. c) Naming the Company: The name of the company should be such that is not used by any other existing company; it is not a name of the King or Queen or President. The Public Limited Company should use (pvt.) Limited and the Public Limited Company must use Limited at the end of the company name. The promoter upon deciding the name, they submit the name in black and white for Clearance in the registrar office. The registrar upon verifying the uniqueness of the proposed name gives clearance of using the name. 2. Registration or Incorporation: To incorporate the new company the promoters needs go through the following steps: a) Collecting Registration Form and Filling it up: The promoters have to collect the registration form and other papers for a fee from the registrar office. Then they should fill up it by themselves or should take the help of the consultants or advocates. b) Preparing Documents and Submitting for Registration: The promoters have to submit the filled-up form with fees and the following documents in the registrar office: Memorandum of Association Articles of Association

 Capital Structure of the proposed Company List of Directors and the amount of the sponsored share they purchased Declaration regarding the proposed name of the company Declaration of an advocate or chartered accountant or any director of a proposed company that the company has followed all the rules and regulations of Company Act 1994. The registrar being satisfied on the paper submitted for the proposed company issues' Certificate of Incorporation. On getting that certificate the Private Limited Company can start its business but the Public Limited Company has to go to another step to start its business. c) Obtaining Certificate of Commencement: Here the promoters should make the Prospectus for the company. This prospectus needs to be published in the daily newspaper. To get the Certificate of Commencement, the promoters need to submit the following documents to the registrar: A copy of Prospectus Name, address, designation, occupation, etc. of Directors Directors written Letter of Agreement that they want to work as director of that company. Declaration that the directors have fully paid the minimum amount of sponsor share. Declaration by the company secretary or other authorized person that the above affairs have maintained all rules and regulation of Company Act 1994. The registrar being satisfied on the paper submitted for the proposed company issues' Certificate of Commencement. On getting that certificate the Public Limited Company can start its business. 3. Flotation Stage If the sponsor directors are unable to provide the adequate capital, public limited company can float their share in the capital market (Stock Exchange) to get required capital. By this time, the company can do its other functions. Advantages of Joint Stock Company: Large financial resources:

A joint stock company is able to collect a large amount of capital through contributions from a large number of people. In a public limited company, shares can be offered to the general public to raise capital. The companies can also accept deposits from the public and issue debentures to raise funds.

Limited

liability:

In case of a joint stock company, the liability of it's members is limited to the value of shares held by them. Private property of members cannot be confiscated for overcoming the debts of the company. This advantage attracts many people to invest their savings in the company and it encourages the company to take more risks. Professional management:

Management of a company is in the hands of the directors, who are elected democratically by the members or shareholders. These directors are known as the "Board of Directors". They manage the affairs of the company and are accountable to all the investors. So, the investors elect capable persons who have sound financial, legal and business knowledge to the board so that they can manage the company efficiently. Large-scale production:

Since there is an availability of large financial resources and technical expertise, it is possible for the companies to have "large-scale" production. This enables the company to produce more efficiently and at a lower cost. Research and development:

Only in joint stock company form of business, it is possible to invest a lot of money on research and development so that new design, better quality products, etc. can be achieved.

Disadvantages of Joint stock companies: Difficult to form:

The formation & registration of joint stock company involves a long and complicated

procedure. A number of legal documents and formalities have to be completed before a company can start business. The process of formation requires the services of specialists such as chartered accountants, company secretaries, etc. Because of all this, the cost of formation of a company is very high. Excessive government control:

Joint stock companies are regulated by government through the Companies Act and other economic legislations. Especially, public limited companies are required to complete various legal formalities as provided in the Companies Act and other legislations. Noncompliance with these causes a heavy penalty. This affects the smooth functioning of the companies. Delay in policy decisions:

Generally policy decisions are taken at the Board of Directors meetings of the company. Further, the company has to fulfill certain procedural formalities. These procedures are time consuming and therefore, may delay action on the decisions.

FIRST MOVERS:
DEFINITION In the business world, a first mover is a company that aims to gain an advantageous and perhaps insurmountable market position by being the first to establish itself in a given market. Since the arrival of the World Wide Web, many new companies (called "start-ups" until their IPO) have established themselves as first movers in their respective marketplace on the Web. Perhaps the quintessential example of being a first mover on the Web is Yahoo, which provided early Web users with the first popular directory and search engine. Although Yahoo has competition from Alta Vista, Google, and several other companies, its well-entrenched position as the one that got there first along with its easy-to-remember brand name and aggregation of content combine to make it difficult to compete with. Other examples of first movers include Amazon.com (books), Travelocity (airline tickets), and eBay (online auctions). Although each of these has encountered competition, their early arrival

and commitment to becoming the predominant owner of their market has seemed to assure their success. One of the usual creeds of companies who attempt to be a first mover and command a market niche is "go big or stay home (GOBOSH)." Once a first mover has become established, the fact that someone has already arrived becomes in itself a barrier to entry for prospective competitors.

First Mover Disadvantages:

1. Demand Uncertainty:

First movers have little information upon which to estimate the potential size of the market and how fast it will grow. Such demand uncertainty make it difficult to estimate future demand, which has important implications for new venture performance as both over estimating and under estimating demand can negatively impact performance. By over estimating demand, the entrepreneur will suffer the costs associated with over capacity and will find that the market may be so small that it cannot sustain the entrepreneurs will suffer the costs of under capacity, such as not being able to satisfy existing and new customers and losing them to competitors, or will alternatively face the additional costs of incrementally adding capacity.

2. Technological Uncertainty:

First movers often must make a commitment to a new technology. There are a number of uncertainties surrounding a new technology, such as whether the technology will perform as expected and whether an alternate technology will be introduced that leapfrogs the current technology. If the technology does not perform as expected the entrepreneur will incur a number of costs that will negatively impact performance, e.g., damage to the entrepreneurs reputation and also the additional R&D and production costs incurred by making necessary changes to the technology.

3. Adaptation: Changes in market demand and technology do not necessarily mean that first movers cannot prosper. They do mean that the entrepreneur must adapt to the new environmental conditions. Such changes are difficult.

The entrepreneur will likely find it difficult to move away from the people and systems that brought initial success and toward new configurations requiring changes to employees roles and responsibilities as well as changes to systems. In other words, the organization has an inertia that represents a force for continuation that resists change.

4. Customers Uncertainty: Whether introducing a new product into an establishes market or an established product into a new market, the entry involves an element of newness. They may be uncertain about how to use the product and whether it will perform as expected. Even if it does perform. They may wonder to what extent its performance provides benefits over and above the products that are currently being used.

5. Building Customer Loyalties: First movers need to establish the firm and its products in the minds of its customers and thus build customer loyalty. Such customer loyalty will make it more difficult and more costly for competitors to enter the market and take the first movers customers. Loyalty is sometimes established when customers associate the industry with the first mover.

6. Building Switching Cost: First movers need to develop customers switching costs that lock-in existing customers. This is a mechanism by which customer loyalty is enhanced. Reward programs, such as frequent flyer points with a particular airline, establish for the customer a financial and/or emotional attachment to the first mover, which makes its costly for the customer to switch to a competitor.

Risk Reduction Strategies for New Entry Exploitation:

A new entry involves considerable risk for the entrepreneur and his or her firm. Risk here refers to the probability, and magnitude of downside loss, which could result in bankruptcy.

The risk of downside loss is partly derived from the entrepreneurs uncertainities over market demand, technological development and the actions of competitors. Strategies can be used to reduce some of all of these uncertainities and thereby to reduce the risk of downside loss. Two such strategies are 1. Market Scope Strategies 2. Imitation Strategies

Market Scope Strategy: Scope is a choice by the entrepreneur about which customer groups to serve and how to serve them. The choice of market scope ranges from a narrow to a broad-scope strategy and depends on the type of risk the entrepreneur believes is more important reduce. 1. Narrow-Scope strategy: A narrow scope strategy offers a small product range to a small number of customer groups in order to satisfy a particular need. The narrow scope can reduce the risk that the firm will face competition with larger, more established firms in a number of ways. a. A narrow-scope strategy focuses the firm on producing customized products, localized business operations, and high levels competitors who are more oriented toward mass production and the advantages that are derived from that volume. A narrow scope strategy of product differentiation reduces competition with the larger established firms and allows the entrepreneur to charge premium prices. b. By focusing on a specific group of customers, the entrepreneur can build up specialized expertise and knowledge that provide an advantage over companies that are competing more broadly c. The high end of the market typically represents a highly profitable niche that is well suited to those firms that can produce customized products, localized business operations and high levels of craftsmanship. From the first point tested above we know that firms pursuing a narrow scope strategy more likely to offer products and services with these attributes than are larger firms that are more interested in volume. 2. Broad-Scope Strategy:

A broad scope strategy can be thought of as taking a portfolio approach to deal with uncertainties about the attractiveness of different market segments. By offering a range of products across many different market segments, the entrepreneur can again an understanding of the whole market by determining which products are the most profitable. Unsuccessful products can then be dropped and resources concerned on those product markets that show the greatest promise. In essence the entrepreneur can cope with market uncertainty by using a broad scope strategy to learn about the market through a process of trial and error. The entrepreneurs ultimate strategy will emerge as a result of the information provided by this learning process. In contrast, a narrow-scope strategy requires the entrepreneur to heve sufficient certainty about the market that she or he is willing to focus their resources on a small piece of the market, with few options to fall back on if the initial assessment about the product proves incorrect. Offering a range of products across a range of market segments means that a broad scope strategy is opening the firm up to many different fronts of competition. The entrepreneur may need to compete with the more specialized firms within narrow market niches and simultaneously with volume producers in the mass market.

Imitation Strategies: Imitation is another strategy for minimizing risk downside loss associated with new entry. Imitation involves copying the practices of other firms, whether those other firms are in the industry being entered or from related industries. This idea of using imitation strategies to improve firm performance at first appears inconsistent with the argument at the start of the chapter that superior performance arises from the qualities of being valuable rare, and imitable. An imitation strategy cannot be rare or imitable

Although this may be true an imitation strategy can still enhance firm performance because a successful new entry does not need to be valuable, rare and imitable on every aspect of the firms operations. Rather imitation of others practices that are peripheral to the competitive advantage of the firm offers a number of entrepreneurs may simply find it easier to imitate the practices of a successful firm than to go through the process of a systematic and expensive search that still a decision based on imperfect information..

Types of Imitation Strategies: Franchising Strategy is an example of a new industry on imitation to reduce the risk of downside loss for the franchise. A franchisee acquires the use of a proven formula for new entry from a franchisor. For example, an entrepreneur might enter the fast-food industry by franchising a McDonalds store in a new geographic location. This entrepreneur is imitating the business practices of the other McDonalds stores and benefits from an established market demand; an intellectual property-protected name and products; and access to knowledge of financial, marketing and managerial issues. Franchising is not the only imitation strategy. Some entrepreneurs will attempt to copy successful businesses. For example, new entry can involve copying products that already exist and attempting to build an advantage through minor variations. This form of imitation is often referred to as a me-too strategy.

Managing Newness: