Entrepreneurship Development Notes - Sem-VI (Unit-I)

ENTREPRENEURSHIP
DEVELOPMENT
PREPARED BY PROF. S.K. DOGRA

ENTREPRENEURSHIP AND ITS SCOPE
Who is an Entrepreneur?
Person responsible for setting up a Business or an enterprise.
Takes initiative, has skills for innovation and looks for achievement.
Agent of change and work for the good of people.
Opens up employment opportunities, creates wealth and boosts other

sectors.
PREPARED BY: PROF. S.K. DOGRA

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Highly self-motivated person, who take
risks to achieve goals.
Firm believer in social betterment.
Visionary having outstanding leadership.
Desire to excel, strongly believes in R & D.

E.D-3
Found in all areas.
Play important role in economic growth.
Aims at high goals.
Person, who identifies an opportunity, gathers

the necessary resources, ultimately responsible
for the performance of the organization.

E.D-4
A French economist Richard cantillon in 1755,
was the first to use the term Entrepreneur.
He said Entrepreneur is one who buys

factors of production at Certain Prices and
sells his Products at uncertain prices, thereby
bearing a non-insurable risk that may arise,
due to depressed demand for his product.

E.D-5
Peter F. Drucker said Entrepreneurs are
innovators. Innovation is the specific tool of
entrepreneurs, this means by which they
exploit change as an opportunity for a
different business or a different service. He
always searches for changes, responds to it an
exploits it as an opportunity

E.D-6
We can now say that entrepreneur is a
person who bears the non-insurable risk,
works under uncertainty, combines and
manages the factors of production,
innovates on all fronts on regular basis,
functions as proprietary capitalist and is
motivated by profit. Associated with
three elements:- Riskbearing,
organizing, innovating.

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QUALITIES / TRAITS / CHARACTERISTICS OF AN
ENTREPRENEUR
Strong achiever
Self-Reliant & Independent

E.D-8
Determined and committed
Hungry for success, optimistic
Self confidence and self-faith
Sustained enthusiasm

E.D-9
Courage & Self-motivated
Ability to survive defeat
Single-Mindedness
Willing to accept responsibility

E.D-10
Never ending energy
Both thinker and doer
Clear objective & creativity
organization skills
Intelligent and have technical knowledge

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TYPES OF ENTREPRENEURS
1. INNOVATING ENTREPRENEURS:-
Introduces something new into the economy
New technique of production, a new source of
material or product, opens a new mkt.
Aggressive in experimentation.
Puts attractive possibilities into practice.
Commonly found in developed countries, as
people of such countries also look for change
and progress, extensive research feasible.

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ADOPTIVE OR IMITATIVE ENTREPRENEURS:-
Adopt successful innovations created by innovating

entrepreneurs.
Copy the technology and techniques, knowledge
Commonly found in developing countries as can not
afford expensive research.
Have capacity to start ventures with limited
resources.
Face lesser risks.
Very important for developing countries as he brings
change.

E.D-13
FABIAN ENTREPRENEURS:-
Very cautious and skeptical for change.

Lack the will to adopt new methods.
Shy and lazy for taking risks
Dealings determined by customs, traditions,
past practices.
May change only for survival

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DRONE ENTREPRENEURS:-
Conservative and laggards

Resist change, continue past methods.
Struggle to exist, not to grow
May be pushed out of the market, when they
loose the market.

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FUNCTIONS OF AN ENTREPRENEUR
1. INNOVATION:- Conceives / ideas for production of new
products/services or improvements in the quality of
production
For this he considers the economic viability and
technological feasibility.
Introduction of different kinds of electronic gadgets
innovation
Includes introduction of new products, creation of new
markets, application of new process of production,
discovering new and better sources of Raw-Materials, New
form / culture of Industrial organization.
Innovation produces satisfaction & profits as he works on
inventions new knowledge.

E.D-16
2. ASSUMPTION OF RISK OR RISK
TAKING:-
Assumes all possible risks of business.
Also involves risks due to changes in tastes/behavior of
consumers, competition, new inventions and
techniques of production.
For all such risks, he may bear losses as he takes up
the responsibilities.
Invests capital, pays interest to lenders, Wages/
salaries, rent, working capital expenditures and after
all these, may be left with little or no profits.
Being Enterprising, assumes risks and tries to
manage / handle it by his skills, innovation, judgement,
planning, expansion etc.
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3. BUSINESS DECISIONS AND ORGANIZATION
BUILDING
Decides nature & types of goods/services to be

produced.
Crucial decision of entering a particular industry,
prospects of products in future and most profitable
methods of production.
Decides about changes in size of business, its location,
new branches, techniques, ways to develop business.
Organizes and monitors various factors of production,
minimize costs of production.
Takes majority of core decisions himself but delegates
authority and decision making when business grows
and decisions become complex.
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4. MANAGERIAL FUNCTIONS:-
Also performs managerial functions of

planning, directing, controlling, leadership etc.
Formulates plans, arrange finance, procure
raw materials, arrange production facilities,
HRD functions.
Large organs:- Delegated to paid managers.

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5. EARNING PROFITS:- As he takes up
ventures, takes risks for earning profits.
Have strong motivation to earn profits and
have success.
For this exploits opportunities.

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ROLE OF ENTREPRENEURS IN THE ECONOMIC GROWTH
OF A COUNTRY
i) AS AN INNOVATOR
They commercialize the inventions made by inventors,
to produce better goods to yield both satisfaction and
profits.
They implement inventors ideas as the same product
made by many entrepreneurs.
Converts technical work of the inventor into economic
performance
Assumes the role of a pioneer and an industrial leader.
Innovational activities raise the productive efficiencies
of the economy resulting in greater output / income.
Have to be innovative for survival and better
performance, to solve all the problems of business.
All the resources combined by him.
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II) BALANCED REGIONAL DEVELOPMENT OF
INDUSTRIES:-
Growth of Industry and Business leads to large number of
public benefits like road transport, health, education,
entertainment.
Rapid Development of Entrepreneurship ensures balanced
regional development. e.g. builders making townships and
shopping malls in many places in the country.
Competition in big cities force the entrepreneurs to setup
business in small towns, helping development of
backward areas.
Small scale industries found everywhere requiring meagre
resources.

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III ) FOREX EARNINGS:-
By exports, bring foreign exchange for the

country, enabling it to handle imports bills.
Foreign exchange reserves for any country

improve the financial standing of the
economy.

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IV) AUGMENTING AND MEETING LOCAL
DEMAND:-
Entrep. help in meeting wide variety of demand

for goods/services.
Need for new goods, products also get created
by them, by many methods of promotion,
education etc.
Many times in backward areas and states,
entrepreneurs from other places come and start
a business thus harnessing local resources,
found abundantly and fulfill local as well as
national demand.
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INTRAPRENEURSHIP
Also called intra corporate entreps.

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Persons with deep desire of personal
achievements within organization are internal
Entreps.
Creative and innovative people within the

organization, catch hold of new ideas for
product, service or process and work to bring
their vision into reality.

E.D-22
Work independently but do not assume ownership
from employer. They are on the payrolls of the
company. Incharge for an identifiable activity.
Allowed to reap the full benefit of their creative
effort
May leave the company to start their own venture
and compete with the company
Dynamic executive, leads company to greater
heights thats why encouraged
Top Management provide financial and technical
assistance to their ideas.

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Entrepreneur V/s Intrapreneur
Basis Entrepreneur Intrapreneur
1. Status 1. Entrepreneur is the owner of the business. 1. Intrapreneur works as employee of

the company
2. Capital 2. Entrepreneur raises the requisite capital 2. Intrapreneur does not raise any
himself. capital.
3. Freedom 3. Entrepreneur works independently. 3. Intrapreneur is semi-independent.
4. Risk-taking 4. Entrepreneur is one who bears full risks of 4. Intrapreneur does not bear any
his business risks of business.
5. Guarantee 5. Entrepreneur guarantees payment to 5. No such guarantee is required to be

suppliers of inputs. given by the intrapreneur.
6. Norms and Rules 6. Entrepreneur operates independently. He 6. Intrapreneur operates from within
is the master of his own show as he frames the organization. He is an
norms and rules of his business. organization man and is bound by
organizational norms and rules.
PREPARED BY: PROF. S.K. DOGRA E.D-24

DISTINCTION BETWEEN
ENTREPRENEUR AND MANAGER
ENTREPRENEUR MANAGER
1. Introduces new ideas to increase 1. Runs the business on established lines.
profits.
2. Runs an existing venture.
2. Sets up new venture
3. Undertakes no risk
3. Assumes risks of economic
4. Earns salary which remains relatively
uncertainties
fixed and regular
4. Earns profits which fluctuate.
5. An employee and dependent on the
5. Own boss and independent status.
owner.
6. Formal education not essential.
7. Very high amount of commitment, 6. Formal education more important.
self-motivation required. 7. Commitment and self-motivation may
be relative

ENVIRONMENT FACTORS
AFFECTING SUCCESS
I. ECONOMIC FACTORS:-
Availability of Capital
Basic need is capital, to arrange for land, materials,
machines, equipments.
Easy availability motivates entrepreneurs to start and grow.
Raw materials Availability
Raw materials required for manufacturing and industrial
enterprises.
Easy availability and access to raw-materials encourage
entrepreneurs
Labour:- Quality / Quantity of Labour and its cost influence
the entrepreneurship
More flexible and mobile labour motivates.

II. Social Factors
1. Education:- gives knowledge and better
understanding for solving day to day problems.
Any country, the system of education has an
impact on people to inculcate and develop
entrepreneurial values.
The knowledge given by education regarding
growing economy, new business
opportunities, trade on global standards,
changing consumer behaviour influence
some people to show their initiative and
entrepreneurial talent.

2. Caste Factor :- In every society,
there are certain cultural practices and
values that influence the actions of
individuals.
Right from early life, people develop same
inclination towards certain occupations,
business global trend.
In Indian society also, certain caste show
better entrepreneurial initiatives.

3. Family Background :-
Exp. of a family in some business a

motivating factor to encourage family
members. Success factor
encourages family members.
Expertise, traits, practices available
within the family

4. Market:- all the goods and services produced
must get a market with customers willing to buy
and with capacities to pay.
Entrepreneurs feel encouraged if there is
potential in the market.
Consumption trends provide encouragement to
the entrepreneurs.
Size of the markets and its composition relating
to number of suppliers, competition, types of
customers, their profiles motivate entrepreneurs
and they look for opportunities to exploit.

5. Infrastructure:- Availability of
required infrastructure encourage
entrepreneurs.
Developed communication,
transportation, power facilities big
support for entrepreneurs.
With these better infrastructural facilities,
entrepreneurs can develop new business
and also enlarge their markets / supplies.

III. PSYCHOLOGICAL
FACTORS
Need Achievement:- Sense of need achievement /
achievement motivation leads to growth of more
entrepreneurs.
Motives:- Motive to earn wealth, seek power, prestige and
be independent.
Entrepreneur thinks he can control his own life
independently, does not believe in luck/ fate
Risk taking is quite high, confident of handling business
risks.
Power of tolerance helps entrepreneurs. They must have a
certain amount of tolerance for ambiguity/Uncertainty.
Entrepreneurs have the thinking of achieving more and more
in less and less time.

IV. POLITICAL
FACTORS
Entrepreneurs function effectively if govt. provides
them support.
Govt must ensure that infrastructure is created,
required resources available and accessible to
entrepreneurs.
Various polices of the Govt. relating to prices,
capital availability, labour, taxation greatly affect
entrepreneurship.
Providing incentives/ Subsides/ Tax benefits
provide encouragement.
Stable Govts. Provide required encouragement.

MOTIVATION OF
ENTREPRENEURS
Motivation is something that moves
the person to action and continuous
him in the course of action already
initiated.
Factors that motivate some people
to start business enterprises are:-

I. Internal Factors
Educational Background
Occupational Experience
Desire to do Something Pioneering and
Innovative
Desire to be Free & Independent
Family Background
Internal factors lead to do something creative,
introduce an entirely new product in the market,
place hometown on countrys industrial map,
make use of technical skills, give employment

II. External Motivating
Factors
Assistance from govt.
Financial assistance from institutions
Availability of Technology / Raw Material
Encouragement from big business units
Others Availability of surplus funds,
sick units available at cheaper price,
support of friends / relatives,
dissatisfaction of job held

Becoming Entrepreneur
Personal and environmental
barriers to
entrepreneurship
Entrepreneurship is influenced by many
personal & environmental barriers.
Personal barriers or factors can be
Qualifications, skills, experience,
knowledge and environmental factors
could be economic, social, and political
factors.

PERSONAL BARRIERS
Lack of Viable concept
Lack of Market Knowledge
Lack of Technical Skills
Lack of Seed Capital
Lack of Business Know-How
Complacency Lack of Motivation

Social Stigma-Compared to
successful ones.
Time pressures
Legal constraints & Regulations (Not
in Residential Areas)
First Generation Entrepreneurs
Entrepreneur by Accident since was
unemployed
ENVIRONMENTAL
BARRIERS
ENTREPRENEURSHIP IS
ENVIRONMENTALLY ORIENTED
Sudden Changes in Government policy
Sudden Political Upsurge
Outbreak of war or regional conflicts e.g. Sons
of the soil call
Political Instability or hostile govt. attitude
towards industry
Excessive red-tapism and corruption among
government agencies
Ideological and social conflicts
Unreliable supply of power, material,
finance, labour and other inputs
Rise in costs of inputs
Unfavorable market fluctuations.
Non co-operative attitude of Banks
and Financial Institutions
Competition

PROBLEMS IN SETTING
UP A NEW VENTURE
I. Lack of Managerial experience or poor
knowledge of the particular line of
production:-
All-round knowledge about various aspects of
Production, Processes, Management Not known
what, how and when to produce, how to market
the products, maintenance of accounts, financial
transactions understanding etc.
None of the above areas can be ignored
Changing technology, methods of production not
known.
II. Lack of Accounting
knowledge/ system
Information, Understanding about
costs, gross margins, break-even point,
depreciation is lacking, thus decision
making may become difficult.
Difficult to maintain proper accounting
Data etc.

Estimate of cash
requirements or faulty
capital planning /
budgeting.
Proper Financial Planning Essential for
proper functioning of the enterprises
New enterprise feels cash crunch when:-
Production does not reach optimum level
Production is below Break-Even Point
Fails to Create and Increase the Demand
for products. Result wastage of Finance
Delay in various activities will cause need
for additional finance.
IV. Lack of Knowledge
About Tax-Related
Matters
May not be Aware of provisions related to
Income Tax / Sales Tax, Obtaining of Sales Tax
Registration at the right Time, Filing Tax
Returns.
V. Erratic Shortages of Raw Materials.
VI. Flourishing Black market
VII Gaps between official promise and
performance by various deptts.
VIII. Irresponsible attitude of employees.
IX. Rising cost of capital & credit.
X. Arrogance and Non Co-operative
Attitude of Bankers
XI. Inadequate common services like
road, power, water in the area
XII. Emerging competition
XIII. Lack of knowledge about
inventory management

STAGES FOR SETTING UP A NEW
VENTURE
Or
PROMOTION OF A VENTURE
Foundation of an enterprise is the project or the venture
Venture is a plan or an idea which is intended to be
carried out in the future
Ventures can be industrial, agricultural, Production,
Services etc.
Entrepreneur originates the idea, makes a detailed
study of various aspects of project, estimate the profit,
finally implements it.
Setting a New Business not an easy Task
Various difficulties to be faced in creating the business
and making it successful

BASIC CONSIDERATIONS IN SETTING UP
A NEW BUSINESS UNIT/STAGES
An entrepreneur wanting to start a new venture
has to take decisions with regard to following:-
1. SELECTION OF A LINE OF BUSINESS:-
Proposed idea analysed to find out whether the
business would be profitable, including probable
risks and the capital required.
Conduct survey of various business
opportunities.
Make feasibility reports, surveys
Estimated Costs, Profits, Returns Analysed

2. CHOICE OF FORM OF
OWNERSHIP
Could be sole proprietorship, P.Ship or a Joint
stock company
Choice of form will determine the authority of
the entrepreneur
Size of business also will determine the form of
organ.
Company form more suitable for large business
Sole Trader / P.Ship for Small / Medium
Capital requirements, Managerial Skills,
Coverage will also decide the form

3. SIZE OF BUSINESS
Size of the firm influenced by various factors like Technical,
Managerial, financial and Marketing
Some factors favour the large size of business while others
operate to restrict the scale of operation
Wherever Entrepreneurs confident of marketing their
products widely and arrange large resources can start large
business
For new ideas / business beginning can be made on small /
medium scale.
Forces of risks and uncertainties can restrict the size of
business
Basic purpose of the optimum size to achieve max. output at
minimum cost

4. Financing the
Proposition
Adequate amount of capital for
starting and running the business to
be arranged.
Capital to be arranged for fixed as
well as working capital
Large businesses to arrange capital
from various sources.

5. Location of
Business
One of the very difficult decisions
Location to be reviewed from the point
of view of access to raw materials,
labour, power, Markets and services like
banking, Insurance, Transport,
communication.
Location has to be optimum to have
minimum costs of production from and
distribution
6. Machines and Equipment
Choice will depend upon availability of capital,
size of production, nature of production processes.
Mechanisation needs to be optimum, leading to
higher productivity.
7. Human Resources
Right kind of Skilled, Unskilled and Managerial
Staff necessary to avoid huge losses of time,
money and effort.
Proper Training and Motivation to be provided.

8. Plant Layout
An efficient Plant Layout allows materials
to move through rapidly and the most
direct way possible.
It reduces Transport, Materials Handling,
Clerical and other Costs and increases
inventory turnover.
Experts Services can be used.
Must reduce chances of delay and
bottlenecks in the Production Systems.

9. Procedural
Formalities
No formalities in sole Traders and Partnerships.
Co. exposed to greater procedural formalities
both at incorporations and during its life.
Incorporation compulsory, documents and fee
deposited with the Registrar of cos.
A public co. also obtains certificate of
commencement.
Co. also required to send periodical returns to
the registrar of cos. and stock exchange
authorities.

10. Tax-Planning
Entrepreneurs to visualize well in
advance the various taxes to be paid.
11. Launching the Business
Enterprises:-
Promoter actually arrange men, material,
machinery, money and the managerial ability.
Makes organ. Structure, various deptts. Mkg.,
Prod., Finance, HR Made to accomplish goals.
Advtg. Sales Promotions to be done.

INDUSTRIAL ESTATES
Specially designed area where factories
can be built (a U.K. concept for encouraging
industrial growth in selected area.)
Basic infrastructure & common services
facilities created for development of
industrial units.
Utility services water, power, drainage,
transport available to all units low,
subsidized rates

Objectives of
Industrial Estates
Promotion of small / medium industries
backward areas.
Removal of congestion in Industrial cities
/ towns.
Balanced reg. development by
decentralizing industry.
Growth of ancillary industries in the
townships surrounding major industrial
units.
Advantages of an
Industrial Estate to
Entrepreneur
Offers industrial sites / plots at reasonable
rates and the decision to buy can be quick
Utility services water, power, drainage and
common services testing center workshops,
banks, insurance, courier available at
subsidized rates etc.
Promoters of such estate provide safety,
security and protection.
Combined strength of Entrepreneurs can help
the entrepreneurs to bargain
EMERGENCE OF
ENTREPRENEURIAL CLASS
Entrepreneurs started emerging from the times of
Industrial revolution when men with mechanical
rather than financial and commercial skills started
setting up industrial establishments on small scale.
They mostly worked with their own hands whose
innovations were in the field of technology, cause
from lower / middle classes.
In India, growth of Entrepreneurship in post-
independence era has been significant.
Number of entrepreneurs in the small / medium scale
sectors has increased significantly over the years.

Self Motivated and talented class of people who are
engaged in the development of new enterprises.
Upto the 19th century, entrepreneurs included those
persons who bore risks of future uncertainty of profits in
new ventures.
Used efficiently the economic resources of the society
and contributed to higher productivity and greater
yields.
Here an important difference was made between
entrepreneurs and the capital suppliers.
Those taking risk by forming new ventures and earning
profits were called entrepreneurs.
Others were people who earned profits by supplying
capital.
They had different kind of risks and job profiles.
During 20th Century, the Entrepreneurs not only took
risks of new ventures but also innovated new useful
products, technologies and markets.
Maximized opportunities by innovating new products,
taking initiatives, organizing some social and economic
mechanisms (understanding needs of society and
arranging new sources of capital, learning economies of
scale and also accepting risks of failure.)
In view of time and effort put in by such people they
were seen as a different class real entrepreneurs and
differentiated from venture capitalists who provided
finance and earned interest there on.
Entrepreneurs made lot of research, made innovative
products, competition intensified and customers started
getting better products
Since 1980s, a new class called the
Intrapreneurs have started emerging.
Emerge from with in the confines of an existing
enterprise.
In big organs. Top Mgrs. are encouraged to catch
hold of new ideas and convert them into
innovative products with the help of the research
and development facilities available in the
organs.
This class becoming popular in developed
Nations and India also.
Of late women are also emerging as a new class
of entrepreneurs
COMPETING THEORIES OF
ENTREPRENEURSHIP
Good quality entrepreneurs are very important for
economic growth of an economy.
Entrepreneurs bear non-insurable risks. All economic
activities carried on by the entrepreneurs.
THEORIES
1. Entrepreneurship: A function of Innovation.
propounded by Joseph A. Schumpeter (1934)
Entrepreneurship plays critical role in economic
development.
Economic development is not an automatic process, but
takes place when a new product is introduced in the
market, new production technology is introduced, a new
market is developed, new sources of supply are found out
and there is new organization of the industries.

All above changes must be actively and deliberately
promoted by the agents entrepreneurs.
They provide economic leadership to bring dynamic
changes, regularly.
He is an innovator.
Psychologically, entrepreneurs not solely motivated by profit.
Theory conceived in the context of the industrial revolution,
innovations, inventions of that time.
Such innovations attracts surplus for reinvestment and the
entrepreneurs can invade various economic fields with great
success.
Theory modeled on big private entrepreneurship as large
volumes can be handled by the entrepreneurs in Pvt. Hands.
Entrepreneurship is shy in an underdeveloped region as
basic infrastructure is weak, only innovative mind cant work

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2. Entrepreneurship: A function
of group level pattern by
Frank W. Young
One individual cannot take
entrepreneurial initiative.
One must find entrepreneurial groups
for a joint effort, as groups have higher
differentiation and different capacities.
Members of a group can show more
solidarity.
Unified actions & mutual
understanding will bring better results.
Some members of the groups excel at
combining the resources like labour, capital
etc. in new ways and thus they become
better entrepreneurs.
Entrepreneur does not work single
handedly.
Individual characteristics are not above
group effort.
Entrepreneurial activity is generated by
the particular family background and
combined experiences.
3. Entrepreneurship: A function of Managerial
skills & leadership.
By Bert. F. Hoselitz (1952)
Person / Entrepreneur has a drive to amass wealth
motivated by profit expections.
But must have some managerial abilities, including
the ability to lead.
Managerial abilities and leadership are the prime
concern and financial skills have a secondary concern.
More matured and developed personalities make
better entrepreneurs leading to productivity, creative
integration of resources and the establishment of
social institutions.
An open society also develops good entrepreneurs.

4. Entrepreneurship: An Organization
building Function:-
By Frederick Harbison.
Ability of Organizations building most critical
skill in industrial development.
Entrepreneurship is the skill to build an organ.
He effectively delegates responsibilities to others
and thus multiplies himself.
Harnesses the ideas of other innovations and
becomes an Organizer builder.
Good leaders are excellent administrators.
More stress on managerial skills and creativity.
Ability to create an organ is most crucial skill as it
facilitates the economic use of other innovations.
LEGAL REQUIREMENTS OF
ESTABLISHMENT OF A NEW UNIT
INCORPORATION OF A COMPANY
FILING OF DOCUMENTS: THE FOLLOWING

DOCUMENTS ARE REQUIRED TO BE FILLED
WITH THE REGISTRAR OF COMPANIES FOR THE
INCORPORATION OF JOINT STOCK COMPANY.

1. MEMORANDUM OF ASSOCIATION: IT IS THE
MOST IMPORTANT DOCUMENT TO BE FILED
WITH THE REGISTRAR. IT IS ALSO CALLED
CHARTER OF THE COMPANY. IT CONTAINS THE
NAME OF THE COMPANY, PLACE OF
REGISTERED OFFICE, OBJECTS OF HE
COMPANY, THE LIABILITY OF MEMBERS, THE
AMOUNT OF ITS AUTHORISED CAPITAL ETC. IT
MUST BE SIGNED

..BY AT LEAST SEVEN PERSONS I IN HE CASE
OF PUBLIC LIMITED COMPANY. THE
MEMORANDUM MUST BE PRINTED, DIVIDED
INTO PARAGRAPHS AND NUMBERED
CONSECUTIVELY. IT IS THE FOUNDATION ON
WHICH THE SUPERSTRUCTURE OF THE
COMPANY IS BUILT. IT DEFINES THE ACTIVITIES
AND POWERS OF THE COMPANY.

2. ARTICLES OF ASSOCIATION: IT IS ANOTHER
IMPORTANT DOCUMENT. IT CONTAINS RULES
AND REGULATIONS FOR THE INTERNAL
MANAGEMENT OF THE COMPANY. PRIVATE
LIMITED COMPANIES MUST PREPARE THEIR
OWN ARTICLES. IN THE CASE OF PUBLIC
LIMITED COMPANIES, THE PREPARATION OF
ARTICLES IS OPTIONAL. A PUBLIC LIMITED
COMPANY WHICH DOES NOT PREPARE AND
FILE..

.ARTICLES CAN ADOPT THE ARTICLES STATED
IN TABLE A OF THE COMPANIES ACT. THE
ARTICLES PRESCRIBE THE RELATIONSHIP
AMONG THE SHAREHOLDERS THEMSELVES AND
THE RELATION BETWEEN T HE SHAREHOLDERS
AND THE COMPANY.

3. LIST OF DIRECTORS: THIS LIST CONTAINS
THE NAMES, ADDRESSES AND OCCUPATIONS OF
PERSONS WHO HAVE AGREED TO ACT AS THE
FIRST DIRECTORS OF THE COMPANY. THERE
MUST BE AT LEAST THREE DIRECTORS IN THE
CASE OF PUBLIC COMPANY AND TWO
DIRECTORS IN THE CASE OF PRIVATE COMPANY.

4. WRITTEN CONSENT OF DIRECTORS: THE
WRITTEN CONSENT OF THE PERSONS WHO
HAVE AGREED TO ACT AS DIRECTORS OF THE
COMPANY HAS TO BE FILED.
5. DECLARATION REGARDING QUALIFICATION

SHARES: THE DIRECTORS SHOULD GIVE AN
UNDERTAKING THAT THEY HAVE AGREED TO
PURCHASE AND PAY FOR THE QUALIFICATION
SHARES ALONGWITH OTHER SHAREHOLDERS.

6. NOTICE OF REGISTERED OFFICE: AT THE
TIME OF INCORPORATION, ADDRESS OF THE
REGISTERED OFFICE OF THE COMPANY,
STATING THE STATE IN WHICH IT IS GOING TO
BE LOCATED IS TO BE FILED. DUE TO ANY
REASONS IF IT WAS NOT FURNISHED, IT MUST
BE FILED WITHIN 30 DAYS FROM THE DATE OF
INCORPORATION.

7. STATUTORY DECLARATION: A STATUTORY
DECLARATION BY AN ADVOCATE OR
SECRETARY OR DIRECTOR OR CHARTERED
ACCOUNTANT OR ANY OTHER PERSON WHO
HAS TAKEN PART IN THE FORMATION OF THE
COMPANY, STATING THAT ALL PROVISIONS OF
THE COMPANIES ACT WITH REGARD TO THE
REGISTRATION HAS BEEN COMPLIED WITH.

8. PAYMENT OF STAMP DUTY AND
REGISTRATION FEE: ALONGWITH THE ABOVE
DOCUMENTS, THE NECESSARY STAMP DUTY,
REGISTRATION FEE AND FILING FEE ARE TO BE
DEPOSITED WITH THE REGISTRAR. IF ALL
DOCUMENTS ARE FOUND TO BE CORRECT AND
IN ORDER, THE REGISTRAR WILL ENTER THE
NAME OF THE COMPANY IN THE REGISTRAR OF
COMPANIES AND WLL ISSUE A CERTIFICATE
KNOWN AS CERTIFICATE OF INCORPORATION.

9. CERTIFICATE OF INCORPORATION: IT IS
ISSUED BY THE REGISTRAR OF COMPANIES
WHEN ALL FORMALITIES CONCERNED WITH
THE REGISTRATION HAVE BEEN FULFILLED.
THE MOMENT THIS CERTIFICATE IS ISSUED,
THE COMPANY ACQUIRES A SEPARATE LEGAL
STATUS. THE CERTIFICATE OF
INCORPORATION.

BEARS THE SERIAL NUMBER, DATE OF
INCORPORATION AND THE SIGNATURE AND
SEAL OF THE REGISTRAR OF COMPANIES. IT IS
CONCLUSIVE PROOF THAT ALL LEGAL
FORMALITIES REQUIRED FOR INCORPORATION
OF A COMPANY HAVE BEEN DULY FULFILLED

CERTIFICATE OF INCORPORATION
I hereby certify that . (name of the

company) is this day incorporated under the Companies Act 1956, and
that the Company is limited.
Given under my hand at Delhi, this seventh day of June, two

thousand..
Fees: Stamp Deed Rs.

Stamp Duty on Capital Rs.
Sd/-
SEAL Registrar of Companies
Maharashtra
EFFECTS OF CERTIFICATE OF
INCORPORATION: THIS IS THE CONCLUSIVE
EVIDENCE THAT ALL THE REQUIREMENTS OF THE
COMPANIES ACT IN RESPECT OF REGISTRATION
HAVE BEEN COMPLIED WITH. EVEN A COURT
CANNOT QUESTION THE VALIDITY OF
INCORPORATION. IF LATER ON, IT IS FOUND
THAT THE OBJECTS OF THE COMPANY WHICH
HAD BEEN GRANTED A CERTIFICATE OF
INCORPORATION WERE .

.ILLEGAL, THE ONLY THE ONLY EFFECT WILL
BE THAT THE OBJECTS THE COMPANY CANNOT
BE LEGALLY EXECUTED. THE COURT HAS NO
POWER TO ANNUAL THE CERTIFICATE OF
INCORPORATION GRANTED TO A COMPANY.

COMMENCEMENT OF BUSINESS
A PRIVATE COMPANY CAN COMMENCE BUSINESS

IMMEDIATELY AFTER INCORPORATION, BUT A
PUBLIC COMPANY, HAVING SHARE CAPITAL, HAS
TO COMPLY WITH SOME MORE FORMALITIES
BEFORE IT CAN COMMENCE BUSINESS. FIRST IT
MUST COMPLETE ALL FORMALITIES CONCERNED
WITH RAISING OF CAPITAL, .

..SECOND, IT SHOULD ALLOT SHARES AND
APPLY TO THE REGISTRAR OF COMPANIES FOR
THE ISSUE OF CERTIFICATE OF COMMENCEMENT
OF BUSINESS. IN THIS CONTEXT, THE
FOLLOWING DECLARATIONS HAVE TO BE MADE:

1. A DECLARATION THAT SHARES PAYABLE IN
CASH HAVE BEEN SUBSCRIBED FOR AND
ALLOTTED UPTO THE MINIMUM SUBSCRIPTION
MENTIONED IN THIS PROSPECTUS.
2. A DECLARATION THAT EVERY DIRECTOR HAS

PAID IN CASH, THE APPLICATION AND
ALLOTMENT MONEY ON HIS SHARES IN THE
SAME PROPORTION AS OTHER.

3. A DECLARATION THAT NO MONEY IS PAYABLE
OR LIABLE TO BECOME PAYABLE TO THE
APPLICANTS BECAUSE OF THE FAILURE OF
THE COMPANY TO EITHER APPLY FOR OR
OBTAIN PERMISSION TO DEAL IN ITS
SECURITIES ON A STOCK EXCHANGE.
4. A STATUTORY DECLARATION THAT THE ABOVE

REQUIREMENTS HAVE BEEN COMPLIED WITH.
THE DECLARATION CAN BE SIGNED BY A
DIRECTOR OR SECRETARY OF THE COMPANY.

A PUBLIC COMPANY RAISING FUNDS, WHICH HAS
EARLIER FILED A STATEMENT, IN LIEU OF
PROSPECTUS, HAS TO SUBMIT ONLY
DOCUMENTS (2) AND (4) LISTED ABOVE.
THE REGISTRAR SHALL EXAMINE THESE

DOCUMENTS. IF THESE ARE FOUND
SATISFACTORY, A CERTIFICATE OF
COMMENCEMENT OF BUSINESS WILL BE
ISSUED.

.THIS CERTIFICATE IS CONCLUSIVE EVIDENCE
THAT THE COMPANY IS ENTITLED TO DO
BUSINESS. WITH THE GRANT OF THIS
CERTIFICATE THE FORMATION OF A PUBLIC
COMPANY IS COMPLETE AND THE COMPANY CAN
LEGALLY START DOING BUSINESS.

CERTIFICATE OF COMMENCE BUSINESS
IT IS ISSUED BY THE REGISTRAR TO A PUBLIC

COMPANY AFTER IT HAS SUCCESSFULLY RAISED
CAPITAL AND COMPLETED THE NECESSARY
FORMALITIES. THIS CERTIFICATE ENTITLES THE
COMPANY TO START IS BUSINESS OPERATIONS.

IT IS A CONCLUSIVE EVIDENCE THAT THE
COMPANY IS ENTITLED TO DO BUSINESS FROM
THE DATE MENTIONED IN THE CERTIFICATE. THIS
ALSO MARKS THE COMPLETION OF THE PROCESS
OF FORMATION OF A PUBLIC COMPANY.

CERTIFICATE OF COMMENCEMENT OF BUSINESS
I hereby certify that Ltd. of . Which was

incorporated under The Companies Act, 1956, on the .. Day of ..
20 and which has this day filed a statutory declaration in the
prescribed form that the conditions of Section 149 have been complied
with, is entitled to commence business.
Given under my hand atthis day of.two

thousand..
Registrar
SEAL Joint Stock of Companies
Maharashtra

VENTURE CAPITAL
VENTURE CAPITAL IS A GENERIC TERM USED TO
REFER TO FINANCING CHARACTERIZED BY HIGH
RISK AND POTENTIAL FOR SUBSTANTIAL
RETURNS. THE TERM IS MOST OFTEN USED TO
REFER TO THE SEED CAPITAL REQUIRED TO
LAUNCH NEW COMMERCIAL VENTURES AND TO
FINANCE THEIR EARLY-STAGE GROWTH.

VENTURE CAPITAL IS A SOURCE OF LONG-TERM FINANCE
TO PROVIDE EQUITY CAPITAL TO VENTURES ADOPTING

NEW TECHNOLOGY.
THE MAIN OBJECTIVE OF VENTURE CAPITAL IS TO
PROVIDE EQUITY TO VENTURES USING NEW

TECHNOLOGY IN ORDER TO COMMERCIALISE THE
TECHNOLOGY AND DEVELOP NEW ENTREPRENEURS IN
SETTING UP NEW UNITS.

SUCH PROJECTS HOLD IMMENSE PROMISE FOR THE
ENTREPRENEURS WHO DO NOT HAVE ANY PAST

PERFORMANCE TRACK.
THEREFORE, SOMETIMES THE INVESTMENTS MAY PROVE
A LITTLE RISKY.
TO OBVIATE THIS RISK AND ATTRACT THE

ENTREPRENEURS, CONCESSIONAL TREATMENT HAS
BEEN ACCORDED TO THE INVESTMENT OF THIS NATURE
UNDER THE INCOME-TAX ACT.

THE SEBI HAS ISSUED SPECIFIC GUIDELINES FOR THE
SETTING UP AND GOVERNANCE OF SUCH FUNDS.
VENTURE CAPITAL IS A HIGH RISK-HIGH RETURN

BUSINESS. THE HIGH RISK IS DUE TO THE FACT THAT
PROJECTS ARE UNTESTED AND ARE UNDERTAKEN BY
NOVICES.
THE TARGETED LONG-TERM RETURNS FROM VENTURE
CAPITAL INVESTMENT ARE NATURALLY HIGH.

VENTURE CAPITAL INVESTMENT IS NECESSARILY A
LONG TERM INVESTMENT. THE FUNDS ARE USUALLY
EXPECTED TO BE TIED UP FOR THREE TO TEN YEARS.

ROLE OF VENTURE CAPITAL
THE FIRST GENERATION ENTREPRENEURS HAVE TO FACE
THE SHORTAGE OF EQUITY CAPITAL.

BANKS AND FINANCIAL INSTITUTIONS GENERALLY
REQUIRE A SIZEABLE EQUITY CONTRIBUTION FROM THE
PROMOTER OF A PROJECT BEFORE THEY SANCTION
LOANS FOR IT.
TECHNOCRATS AND SCIENTISTS WHO WANT TO SET
BUSINESS VENTURES CANNOT PROVIDE MUCH CAPITAL.

VENTURE CAPITAL FUNDS PROVIDE THE MUCH NEEDED
CAPITAL TO THEM.

A HIGH DEGREE OF RISK IS INVOLVED IN VENTURE
CAPITAL FINANCING DUE TO THE HIGH PROBABILITY OF

LOSS IN NEW VENTURES.
THE VENTURE CAPITAL FUNDS BEAR HIGH RISKS IN THE
HOPE OF A HIGH REWARD FROM THE SUCCESS OF THE

PROJECT.
THE TECHNOCRAT PROMOTER CONTRIBUTES HIS IDEA
AND MAKES THE BUSINESS PLAN WHILE THE VENTURE

CAPITAL FUND CONTRIBUTES RISK CAPITAL AND
MANAGEMENT SUPPORT.

ONCE THE VENTURE SETTLES DOWN TO PROFITABLE
WORKING, BANKS AND RETAIL INVESTORS ARE WILLING

TO INVEST IN IT.
AT THIS STAGE, THE VENTURE CAPITAL FUND CAN SELL
OUT ITS SHAREHOLDING IN THE ENTERPRISE.

THE MAIN FEATURES OF VENTURE CAPITAL ARE AS
FOLLOWS:
INVESTMENTS ARE MADE IN THOSE ENTERPRISES WHICH
ARE NEW AND USE NEW TECHNOLOGY TO PROVIDE NEW

PRODUCTS, HAVING AN EXPECTATION OF HIGHER PROFITS.
GENERALLY THE INVESTMENTS ARE IN EQUITY
INSTRUMENTS
THE VENTURE CAPITAL INVESTMENT IS HIGHLY ILLIQUID.
IN OTHER WORDS, IT IS NOT SUBJECT TO REPAYMENT ON

DEMAND.

THE VENTURE CAPITAL INVESTOR CANNOT INTERFACE
IN THE DAY-TO-DAY MANAGEMENT OF THE ENTERPRISE

BUT TO PROTECT AND ENHANCE THE INVESTMENT, HE
KEEPS CLOSE CONTACT WITH THE ENTREPRENEUR(S) OR
PROMOTER(S).

VENTURE CAPITAL IS AN IMPORTANT SOURCE OF EQUITY
FOR START-UP COMPANIES. AN ENTREPRENEUR STARTING
A NEW PROJECT WILL INVEST SOME CAPITAL OF HIS OWN
AND LOOK FOR SOME OTHER SOURCE TO RAISE REST OF
THE CAPITAL REQUIRED FOR THE PROJECT.
THAT SOURCE COULD BE A VENTURE CAPITALIST. IT IS

THE VENTURE CAPITALIST WHO TAKES THE RISK OF
CONTRIBUTING CAPITAL FOR SUCH PROJECTS WITH THE
EXPECTATION OF HIGHER RETURNS IN FUTURE.

A VENTURE CAPITAL INSTITUTION MAY EVEN INSIST ON
HAVING A REPRESENTATIVE APPOINTED TO THE
COMPANYS BOARD OF DIRECTORS TO TAKE CARE OF ITS
INTERESTS.

VENTURE CAPITAL FUNDING IS A BOOM TO THE FIRST
GENERATION ENTREPRENEURS WHO START VENTURES
HAVING GREAT POTENTIAL. FOR DECADES, VENTURE
CAPITALISTS HAVE NURTURED THE GROWTH OF AMERICAN
HIGH TECHNOLOGY AND ENTREPRENEURIAL
COMMUNITIES RESULTING IN SIGNIFICANT JOB CREATION,
ECONOMIC GROWTH AND INTERNATIONAL
COMPETITIVENESS. COMPANIES SUCH AS DIGITAL
EQUIPMENT CORPORATION, APPLE, FEDERAL EXPRESS,
COMPAQ, SUN MICROSYSTEMS, INTEL, MICROSOFT AND
GENETECH ARE FAMOUS EXAMPLES OF COMPANIES THAT
RECEIVED VENTURE CAPITAL DURING INITIAL STAGES.

VENTURE CAPITAL FUNDS IN INDIA
IN INDIA, VENTURE CAPITAL FUNDS ARE GOVERNED BY
THE SEBI GUIDELINES. A VENTURE CAPITAL FUND MEANS
A FUND ESTABLISHED IN THE FORM OF A COMPANY OR
TRUST, WHICH RAISES MONEY THROUGH LOANS, ISSUE OF
SECURITIES OR UNITS, AND MAKES OR PROCESSES TO
MAKE INVESTMENTS IN ACCORDANCE WITH SEBI
REGULATIONS.
VENTURE CAPITAL FUNDS PROVIDE VENTURE CAPITAL FOR

INDUSTRIES LIKE INFOTECH, BIOTECHNOLOGY AND
ELECTRONICS.

THE INVESTMENT, HOWEVER, IS A LONG-TERM RISK
CAPITAL AS SUCH PROJECTS NORMALLY TAKE 3 TO 7
YEARS TO GENERATE SUBSTANTIAL RETURNS. VENTURE
CAPITALISTS OFFER MORE THAN MONEY TO THE NEW
VENTURE AND SEEK TO MONITOR AND EVALUATE THE
PROJECT ON A CONTINUOUS BASIS.

THE SUPPLIERS OF VENTURE CAPITAL USUALLY FALL IN
THESE CATEGORIES:
A.SUBSIDIARIES OF LARGE FINANCIAL CORPORATIONS

(INSTITUTIONS) AND BANKS
B.PRIVATE INDEPENDENT SPECIALIZED FIRMS
C.PUBLICLY FUNDED SMALL BUSINESS INVESTMENT

CORPORATIONS
D.SUBSIDIARIES OR DIVISIONS OF LARGE MANUFACTURING

CORPORATIONS

IN THE RECENT YEARS, SEVERAL VENTURES CAPITAL
FUNDS (VCFS) HAVE COME UP IN INDIA TO PROVIDE
VENTURE CAPITAL TO THE YOUNG ENTREPRENEURS.
WAY BACK IN 1988-89, THE UTI SET UP A VCF OF RS.20

CRORE IN COLLABORATION WITH THE ICICI FOR
FOSTERING INDUSTRIAL DEVELOPMENT.
TECHNOLOGY DEVELOPMENT AND INFORMATION

COMPANY OF INDIA LTD. (TDICI) ESTABLISHED BY THE UTI
LAUNCHED VENTURE CAPITAL UNIT SCHEME (VECAUS-I)
TO RAISE RESOURCES FOR THIS FUND.

SOME COMMERCIAL BANKS HAVE ALSO FLOATED VCFS.
RECENTLY, SOME VCFS IN THE PRIVATE SECTOR HAVE
ALSO BEEN FLOATED.

DOCUMENTATION REQUIRED
FOR PROVING FINANCES FOR A NEW VENTURE ANY
FINANCIAL INSTITUTION OR INVESTOR NEEDS DETAILED
INFORMATION IN THE FORM OF DIFFERENT DOCUMENTS.
THE INVESTOR NOT ONLY GOES THROUGH THESE

VOLUMINOUS DOCUMENTS, BUT ALSO CROSS CHECKS BY
ASKING MORE RELEVANT DETAILS, COMPARING WITH
SIMILAR INDUSTRIES, DISCUSSIONS AND DUE DILIGENCE
OF THE DOCUMENTS, FIGURE AND ASSUMPTIONS MADE B
THE ENTREPRENEUR.

THE DOCUMENT GENERALLY NEEDED ARE:
PROJECTS FEASIBILITY STUDY REPORT (PFSR)
MARKET RESEARCH STUDY REPORT AND ANALYSIS
ENVIRONMENT AND SOCIAL STUDY REPORTS
ANALYSIS AND APPRAISAL OF PFSR FROM ECONOMIC,
FINANCE, MARKETING, ORGANSATIONAL ANGLES.

SWOT ANALYSIS OF THE PROJECTS
A BRIEF OF THE PROJECT OR PROJECT AT A GLANCE.

EXECUTIVE SUMMARY
LAND DOCUMENTS
PARTNERSHIP OR PROPOSED ORGANISATION
NECESSARY GOVERNMENT CLEARANCES FOR THE

VENTURE
ENVIRONMENTAL CLEARANCES
PLUS POINTS OF THE VENTURE PROPOSED
NEGATIVE OR LIMITING ISSUES IN THE PROPOSAL

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ENTREPRENEURSHIP

PREPARED BY PROF. S.K. DOGRA

Person responsible for setting up a Business or an enterprise.

Agent of change and work for the good of people.

Opens up employment opportunities, creates wealth and boosts other

PREPARED BY: PROF. S.K. DOGRA

Firm believer in social betterment.

Visionary having outstanding leadership.

Desire to excel, strongly believes in R & D.

PREPARED BY: PROF. S.K. DOGRA

Play important role in economic growth.

Aims at high goals.

Person, who identifies an opportunity, gathers

PREPARED BY: PROF. S.K. DOGRA

He said Entrepreneur is one who buys

PREPARED BY: PROF. S.K. DOGRA

PREPARED BY: PROF. S.K. DOGRA

PREPARED BY: PROF. S.K. DOGRA

Self-Reliant & Independent

PREPARED BY: PROF. S.K. DOGRA

Hungry for success, optimistic

Self confidence and self-faith

PREPARED BY: PROF. S.K. DOGRA

Ability to survive defeat

Willing to accept responsibility

PREPARED BY: PROF. S.K. DOGRA

Both thinker and doer

Clear objective & creativity

Intelligent and have technical knowledge

PREPARED BY: PROF. S.K. DOGRA

PREPARED BY: PROF. S.K. DOGRA

Adopt successful innovations created by innovating

PREPARED BY: PROF. S.K. DOGRA

Very cautious and skeptical for change.

PREPARED BY: PROF. S.K. DOGRA

Conservative and laggards

PREPARED BY: PROF. S.K. DOGRA

PREPARED BY: PROF. S.K. DOGRA

Decides nature & types of goods/services to be

Also performs managerial functions of

PREPARED BY: PROF. S.K. DOGRA

For this exploits opportunities.

PREPARED BY: PROF. S.K. DOGRA

PREPARED BY: PROF. S.K. DOGRA

By exports, bring foreign exchange for the

Foreign exchange reserves for any country

PREPARED BY: PROF. S.K. DOGRA

Entrep. help in meeting wide variety of demand

Also called intra corporate entreps.

PREPARED BY: PROF. S.K. DOGRA

Creative and innovative people within the

PREPARED BY: PROF. S.K. DOGRA

PREPARED BY: PROF. S.K. DOGRA

1. Status 1. Entrepreneur is the owner of the business. 1. Intrapreneur works as employee of

3. Freedom 3. Entrepreneur works independently. 3. Intrapreneur is semi-independent.

5. Guarantee 5. Entrepreneur guarantees payment to 5. No such guarantee is required to be

PREPARED BY: PROF. S.K. DOGRA E.D-24

PREPARED BY: PROF. S.K. DOGRA E.D-25

PREPARED BY: PROF. S.K. DOGRA E.D-50

PREPARED BY: PROF. S.K. DOGRA E.D-51

PREPARED BY: PROF. S.K. DOGRA E.D-52

Exp. of a family in some business a

PREPARED BY: PROF. S.K. DOGRA E.D-53