Module 2

Types of Business Entities and Relevance

Business Entities
• A business entity is an organization created by an individual or individuals to conduct business,
engage in a trade or partake in similar activities.
• There are various types of business entities — sole proprietorship, partnership, LLC, corporation,
etc. — and a business's entity type dictates both the structure of that organization and how that
company is taxed.
• If a business is not registered with the state, it will usually be treated as a sole proprietorship if it
is owned by one individual or as a partnership if two or more people own it.
Small Businesses
Small business is defined as a privately owned corporation, partnership, or sole proprietorship that has
fewer employees and less annual revenue than a corporation or regular-sized business. The definition of
"small"—in terms of being able to apply for government support and qualify for preferential tax policy—
varies by country and industry.

Characteristics of Small Scale Industries

Ownership: They have a single owner. So it is also known as a sole proprietorship.
Management: All the management works are controlled by the owner.
Limited Reach: They have restricted area of operation. So they may be a local shop or an industry located
in one area.
Labor Intensive: Their dependency on technology is very little because they are dependent on labour and
manpower.
Flexibility: Because they are small, they are open and flexible to sudden changes, unlike large industries.
Resources: They utilize local and immediately available resources. They do better utilization of natural
resources and limited wastage.
Role of MSME in Indian Economy
MSMEs are a vital part of the Indian economy and have made significant contributions to the country's socio-
economic growth. they create job possibilities and contribute to the development of the country's backward and
rural areas.
MSMEs contribute almost 8% of the country’s GDP, around 45% of manufacturing production, and about 40%
of exports. With this significant contribution, it isn't an exaggeration to call them the 'backbone of the country.
They are also accountable for one-third of India's manufacturing output. MSME helps Indian economy by
providing:
1. Economic Stability
2. Cheap Labor
3. Large scale employment Generation
4. Significant contribution in “make in India”
Challenges of MSME
Rising Competition, Lack of credit, Productivity issues, Instable market
 Effect of MSME on People’s Life

1. MSMEs aim to make workers' lives better. they help them by providing jobs, loans, and other services.

2. MSMEs contribute to the advancement of innovative technologies, the expansion of infrastructure, and the
modernization of the sector as a whole, all of which improve laborer's working conditions.

3. They also offer high-quality certification services and state-of-the-art testing labs.

4. MSMEs are now supporting product development, design innovation, intervention, and packaging in keeping
with current trends, ensuring that clients receive the highest quality products.

5. The prime minister's employment generation programme scheme, which was created by the Indian government
and is handled by the ministry of MSME, is a financing facility for ambitious entrepreneurs who want to start a
microbusiness. it also aids in the improvement of the lives of rural people.
Types of Small Business
• Small-scale manufacturing industries.
• Handlooms and power loom.
• Khadi
• Agro-based industries.
• Tuition Centres.
• Photography.
• Breakfast joint
• Printing.
• Coir
• Sericulture
Nature of Small Business

• 1. Shoestring Budget • 4. Indigenous technology

• A sole proprietor or a small group of people operate • Due to small businesses being community focused and
small businesses. These businesses often run on labour oriented they often thrive upon native methods of
‘shoestring budget’ meaning that small businesses operations. In India, there are many businesses in the rural
function on a very tight budget. sector that still use outdated technology. This might give
uniqueness to the products but hinders the development
• 2. Labour intensive of the business.
• Small businesses are mostly labour intensive. Various • “Small enterprises rather than big corporations are driving
types of small business largely rely on labour for their the Indian economic recovery. India’s MSME (micro, small
functioning. The primary nature of small businesses and medium enterprises) sector, with 48 million
is more involvement of physical work rather than enterprises, contributes 37.5% to the gross domestic
intellectual work. The lack of machinery makes the product, provides employment to 111.4 million persons
employees manage their operations manually. and accounts for more than 40% of India’s exports.”
• 3. Community-based – Livemint, 2016.
• Small businesses are started with the motive of
satisfying the needs and demands of a local area or
community. These businesses demographically target
few areas of concentration and are hence
community-based.
 Case Study of Small Business growing to Business Empire

https://www.youtube.com/watch?v=EdpoEmifW7M
(lijjat Papad)
https://www.youtube.com/watch?v=JqSeQ3c4_qI
(MDH)
https://www.youtube.com/watch?v=A1k62pSQ7so
(Chik Shampoo)
 Co-operative Societies
• Cooperative societies expanded from the farming sector to other sectors in India. Example IFFCO
• Industries in the cooperative sector are controlled and owned by a small group of people who are
either the producers or the suppliers of materials for raw employees. Examples include sugar
production in Maharashtra and the industry for coins in Kerala. Anand Milk Union Limited and
Sudha Dairy are two instances of cooperative sector industries.
• Cooperative sector companies are run and controlled by a group of individuals. In general, the
members are the ones who produce raw materials. Some examples of these industries include
handloom, food processing, and dairy products. Amul is a model of a cooperative sector society.
• They are operated and owned by the manufacturers or suppliers for raw materials, employees or
both. The resources are shared among stakeholders, and profits and losses are divided equally.
AMUL, which is a milk cooperative, is an excellent illustration. Sugar production located in
Maharashtra is another instance.
https://www.youtube.com/watch?v=0w9h45qUl5Y (Indian Coffee House)
https://www.youtube.com/watch?v=2OPx9ubwB6M
NAFED https://www.youtube.com/watch?v=fY0U7KWBAA0
NCDC https://www.youtube.com/watch?v=2_bW4OhryUI
Co-operative Societies
What is a Private Company?
A private company is one that cannot offer its shares to the general public as it is restricted. In a
private company, the shares are privately held by the members or investors.
PVT LTD is the suffix that follows the name of a private company.
The main advantage of a private company is that they are exempt from having to reveal its financial
information to the general public.

What is a Public Company?

According to the Companies Act of 2013, a company that is listed on a stock exchange and is able to
offer its securities to the general public is referred to as a public company.
The company must launch an IPO in order to become publicly traded. A company that is publicly
traded allows its shareholders to easily sell shares on a stock exchange.
A publicly-traded company must make its annual report accessible to all stakeholders. In order to
grow, a public company must issue more shares to the general public.
Private Vs Public Company
Multi-National Enterprises
• A multinational enterprise, abbreviated as MNE and sometimes also called multinational
corporation (MNC), just multinational or international corporation, is an enterprise producing
goods or delivering services in more than one country.
• A multinational enterprise has its management headquarters in one (or rarely more than one)
country, the home country, while also operating in other countries, the host countries.
• Generally, a multinational company has offices, factories, or other facilities in different countries
around the world as well as a centralized headquarters which coordinates global management.
• Multinational companies can also be known as international, stateless, or transnational corporate
organizations or enterprises. Some may have budgets that exceed those of small countries.
• Multinational companies can make direct investments in foreign countries. Many are based in
developed nations.
Some of the characteristics common to various types of multinational corporations include:

• A worldwide business presence

• Typically, large and powerful organizations
• Business conducted in various languages
• A complicated business model and structure
• Direct investments in foreign countries
• Jobs created in foreign countries, potentially with higher wages than found locally
• Seeks improved efficiencies, lower production costs, larger market share
• Has substantial expenses associated with navigating rules and regulations of foreign countries
• Pays taxes in countries in which it operates
• Reports financial information according to International Financial Reporting Standards (IFRS)
• Sometimes accused of negative economic and/or environmental impacts in foreign markets
• Sometimes accused of negative economic impacts in home country due to outsourcing jobs
Types of MNC
Decentralized Corporation:
Decentralized corporations may have multiple offices, facilities and assets in foreign countries, but
they still maintain a strong presence in their home country. While decentralized corporations
typically don't have a central headquarters, each country they operate in may have its own
management structure.
This helps the corporation scale quickly while ensuring it adheres to the regulations in each
geographic area.
Global centralized corporation:
A centralized global corporation may have a head office in its home country, where the chief
executive officer and other senior leaders reside.
These corporations often look for opportunities to increase revenue by purchasing cheap resources
and materials from foreign countries.
The same management team typically handles both domestic and international decisions. They also
oversee all global operations.
International Division
Corporations may keep their domestic operations separate from their international operations by
creating an international division. This new division is responsible for overseeing all of the
corporation's operations in foreign countries.
While this structure can help companies reach a wider audience and make decisions that appeal to
different cultures, it can also be challenging to maintain a cohesive brand image.
Transnational Enterprise
A transnational enterprise may exist within a parent-subsidiary relationship. This allows them access
to many of the parent corporation's resources, such as their R&D team, even though they may
operate in separate countries.
Typically, the parent company oversees the transnational enterprise and makes decisions on its
behalf. While they typically follow a centralized leadership structure, this can vary from one
corporation to the next.
Disadvantages of MNC
• Decreased innovation: Often, the most innovative developments come from small, nimble
companies rather than large multinational corporations who have secured a significant share of
the market. To prevent your organization from becoming too comfortable with the status quo,
invest in R&D.
• Depleted environmental resources: Expanding operations to foreign countries often requires
land development, which can deplete natural resources. Be mindful of your organization's impact
on the environment and look for more sustainable alternatives, such as repurposing preexisting
buildings.
• Complicated regulations: Operating in multiple countries can make it more complicated to
comply with the regulations in each area. Make sure you invest in a skilled legal team and
experienced accountants who are familiar with the requirements of each country you operate in
to mitigate legal risks.