This presentation covers the topic of small scale enterprises, it sheds light on its definition, types, features, relation to large scale enterprises and role played by it in economic development. It also covers the concept of ownership, the various forms ownership structure and selection of an appropriate ownership structure. It uses the study note format. Enjoy learning!

1. INTRODUCTION TO SMALL
SCALE ENTERPRISES
Prepared by- Amanda
Bvera

2. DEFINITION OF SMALL SCALE
ENTERPRISES
A business which functions on a small scale and involves less
capital investment, a smaller number of labour and few machines to
operate is known as a small business.
Small scale Industries or small business are the type of industries
that produces goods and services on a small scale. These industries
play an important role in the economic development of a country. The
owner invests once on machinery, industries, and plants, or take is a
lease or hire purchase. These industries do not invest more than one
crore. Few examples of small-scale industries are paper, toothpick,
pen, bakeries, candles, local chocolate, etc., industries and are mostly
settled in an urban area as a separate unit.
These industries can be set up easily and have a smaller gestation
period. Hence, they accelerate the process of balanced regional
development.

3. CHARACTERISTICS OF SMALL
SCALE ENTERPRISES
Ownership: They have single owner, so it is also known as sole
proprietorship.
Management: All the management works are controlled by the
owner.
Limited reach: They have a restricted area of operation. So they may
be a local shop or an industry located in one area.
Labour intensive: Their dependence on technology is very little
because they are dependent on labour and manpower.
Flexibility: As they operate on a small scale, they are open and
flexible to sudden changes, unlike large industries.
Resources: They utilize local and immediately available resources.
They do a better utilization of natural resources and have lesser

4. A small enterprise has a lesser gestation period compared to a
larger industry.
Small enterprises generally carry out their operation so as to cater to
the local and regional markets.
Using local resources, small units are decentralized and dispersed to
rural areas and smaller towns.
They are the backbone of the industrial activity in the country and
are playing a very important role in improving the socio-economic
conditions of the people.
A small scale enterprise is generally a ‘one-man show’.
They require lesser capital investment and do not need expensive
technology.
They bring out the creative abilities of the people engaged in them.
There are various kinds of small scale industries engaged in various
fields such as manufacturing and services.

5. ADVANTAGES OF SMALL SCALE
ENTERPRISES
There are several advantages to small scale enterprises. These can be
shown as follows:
They create greater employment opportunities through labour intensive processes and
thereby help in tackling the unemployment problem.
They have low gestation period and thereby expensive financial resources are not idled
unproductively for long periods.
They can be set up easily in rural and backward areas.
They need small, local or regional markets.
They encourage the growth of local entrepreneurship.
They create decentralized pattern of ownership.
They foster diversification of economic activities.
They innovate and introduce new products particularly to cater to local needs.
They influence and improve standard of living of local people.
They provide equitable dispersal of enterprises throughout rural and backward areas.
They earn vital foreign exchange for the country through their export of goods and
services.
They increase revenue to central and state governments by way of taxes paid by them.

6. TYPES OF SMALL SCALE
ENTERPRISES
Based on capital investment, small business units can be divided
into the following categories:
Small Scale Industry
Ancillary Small Industrial Unit
Export Oriented Units
Small Scale Industries Owned by Women
Tiny Industrial Units
Small Scale Service and Business
Micro Business Enterprises
Village Industries
Cottage Industries

7. Small scale industry:
They invest in fixed assets of machinery and plant, which does not surpass than
one crore.
For export improvement and modernization, expenditure ceiling in machinery and
plant is five crores.
Ancillary Small industrial unit:
This industry can hold the status of an ancillary small industry if it supplies a minimum
50 per cent of its product to another business, i.e., the parent unit.
They can produce machine parts, components, tools or standard products for the parent
unit.
Export oriented units:
This industry can possess the status of an export-oriented unit if it exports exceeds 50
per cent of its manufactures.
It can opt for the compensations like export bonuses and other grants awarded by the
government for exporting units.
Small scale industries owned by women:
An enterprise operated by women entrepreneurs in which they alone or combined share
capital minimum of 51 per cent.
Such units can opt for the special grants from the government, with low-interest rates
on loans, etc.
Tiny industrial units:
It is an Industrial or a company whose expenditure on machinery and plant does not
exceed Rs. 25 lakhs.

8. Small scale service and business:
It is a fixed asset investment on machinery and plant excluding land and building
should not surplus Rs. 10 lakhs.
Micro Business Enterprises:
It is a tiny and small business sector.
The investment in machinery and plant should not exceed Rs.1 lakh.
Village industries:
The industries which are in rural areas and manufacture any product performs any
service with or without the utilization of power is called village industries.
They have fixed investments on capital as per head, workers, and artisan, which does
not exceed Rs.50, 000.
Cottage industries:
It is also known traditional or rural industries.
These industries are not covered by the capital investment criterion.
These are organized by a single person, with private resources.
Use family labour and local talent.
Simple instruments are used.
Small capital investment is involved.
Simple products are made.
Indigenous technology is utilized.

9. Sno. Basis Small scale units Large scale unit
1. Definition Small scale units are those in
which investment in plant and
machinery should not exceed 1
crore. The government revises
this limit from time to time.
Large scale units are those in
which investment in plant and
machinery can go beyond the
government specified limit. It
has large investment in fixed
assets.
2. Technology It uses local and indigenous
technology.
It uses state of the art
technology.
3. Raw material It procures raw materials from
local producers.
It procures raw material from
various sources inside and
outside the country.
4. Labour It requires semi-skilled labour. It requires highly skilled
labour.
5. Geographical reach It has a small reach and covers
only local market.
It has a huge reach and covers
wider portions of markets.
6. Objective To cater to the local markets and
improve rural areas and the rural
community.
To cater to both domestic and
foreign markets and make the
country more self-reliant.
 DIFFERENCE BETWEEN LARGE SCALE & SMALL SCALE ENTERPRISES

10. RELATIONSHIP BETWEEN LARGE
SCALE & SMALL SCALE
ENTERPRISES
The objectives of small scale as well as large scale industries complement each
other beautifully.
Small scale industries are labour-intensive whereas large scale industries are
capital-intensive.
Small scale enterprises aims to create employment for local residents while
using less capital. It helps in eradicating backwardness from rural areas, which
results in decreasing regional imbalances, as it raises the income level and
improves the standard of living.
Large scale industries are the backbone of the economy, as they facilitate in the
production of those consumer goods and capital goods which are imported from
abroad, which encourages self-reliance. Further, they provide employment to
many people belonging to different areas. In addition to this, exports are
promoted which increases the country’s revenue.
A successful partnership between both the types of enterprises is essential for
economic development.
Both small scale industries and large-scale industries occupy a significant place
in the development of the country, not just because they provide employment to

11. ROLE OF SMALL SCALE
ENTERPRISES IN ECONOMIC
DEVELOPMENT
Small scale enterprises play a crucial role in the economic development of
the country. They provide numerous benefits to the rural community and
enhance the level of production in the local areas. They also contribute a
substantial amount of revenue to the central and state governments.
Here are some of the important roles played by small scale enterprises in
economic development:
Employment generation
Self-employment
Optimum use of capital
Facilitate entrepreneurial development
Use of local resources
Balanced regional development
Conservation of foreign exchange
Equal distribution of income
Supporting agriculture and large industries
Increase in industrial output.

12. Employment Generation:
The rise in small scale enterprises helps to tackle the unemployment problem in the
country. These business units help to spread jobs in the rural and backward areas, thus
helping the rural community stay afloat. Employment is an important indicator of the level
economic development of a country, hence small scale industries improve the quality and
quantity of labour in the country.
Self-employment:
Self-employment is the process through which an individual decides to initiate, organize
and manage an enterprise, instead of working as an employee in an organization. This
implies that there is one less job-seeker in the country. Thus small enterprises have the
advantage of easy set-up which promotes self-employment in the nation. This further
results in the creation of more jobs and creates an environment of healthy competition in
the economy.
Optimum use of capital:
Small enterprises require less investment in capital, they have a lower gestation period
and hence capital resources are not idled unproductively for long periods of time. Thus,
small scale enterprises lead to an optimum use of capital.
Facilitate entrepreneurial development:
The growth of small scale enterprises facilitates entrepreneurial development in many
ways. It removes the apprehensions of the people regarding an entrepreneurial career and
it also boosts the level of production from the rural and urban areas.
Use of local resources:
Small enterprises generally procure the raw materials required for their operation from
the local producers. Therefore, the local resources are used to their fullest capacity. This
helps the local producers stay afloat and preserves the natural goods and occupations of
the rural community.

13. Balanced regional development:
One of the major hindrances to economic growth in India is unbalanced regional development.
Certain regions of the country seem to be bustling with trade and commerce whereas other
areas are ever-sinking into poverty. The dispersion of small scale enterprises into such areas,
facilitates balanced regional development. It creates employment and improves the standard of
living of the people residing in those areas.
Conservation of foreign exchange:
Small scale enterprises help in the conservation of foreign exchange, by reducing the amount
of imports of the country. With more business units engaged in domestic production, it leads to
the nation becoming more self-reliant. Thus, reducing the need to import goods from abroad.
These units also earn a substantial amount of foreign exchange for the country.
Equal distribution of income:
The growth of small scale enterprises leads to a more equitable distribution of income, due its
decentralized and dispersed nature. The small scale enterprises are set up with the objective of
improving the livelihoods of the people living in that area, and to provide a stable and decent
source of income for them and their families.
Supporting agriculture and big industries:
Agriculture is of primary importance in a country such as India. It provides jobs to numerous
people in India, upgrading the agricultural sector with the latest agricultural techniques and
practises is crucial. Small scale industries help to achieve this by supplying valuable tools and
implements to the sector. It also supports large scale industries in its operations.
Increase in industrial output:
Small scale enterprises lead to an increase in industrial output. They encourage more
production in the economy. As the level of production increases, so will the level of
employment and income. Thus it improves the standard of living of the people.

14. MEANING OF OWNERSHIP
STRUCTURE
According to Gareth R. Jones “Organisational structure is the formal
system of task and authority relationships that control how people
coordinate their actions and use resources to achieve organisation’s
goals. The principle purpose of organisational structure is one of
control: to control the means used to motivate people to achieve
these goals.”
The question of ownership is a primary question in small business
management. Every entrepreneur should have a clear vision about the
nature of the business he or she is running, this along with several
other factors determine the ownership structure of the organisation.
Ownership is represented by the right of an individual or a group of
individuals to acquire the legal title to assets for the purpose of
managing an industrial operation.

15. TYPES OF OWNERSHIP
STRUCTURES
Small industrial units are by and large, started by persons who value
independence and are desirous of obtaining the highest rewards for
their initiative, innovation, technical skills, business acumen and
experience.
The chief forms of ownership structure are as follows:
Ownership Structure
Sole proprietorship Partnership Co-operative Society Joint-stock Company

16. SOLE PROPRIETORSHIP
Sole proprietorship is a form of business organisation in which an
individual invests his own capital, uses his own skill and intelligence in the
management of its affairs and is solely responsible for the results of its
operation.
The individual, with the assistance of the other workers or by his own
labour and capital, may run the industry. This form of entrepreneurship is
also known as individual entrepreneurship.
It is the oldest and the most sought after form of enterprise in the field of
small scale industry, and the easiest and simplest form of entrepreneurship
from the operational entrepreneurship.
The following are the salient features of sole proprietorship:
Sole ownership
One-man control
Unlimited risk
Undivided risk

17. The following are the merits of sole proprietorship:
Easy and simple formation
Smooth management
Promptness in decision-making
Direct motivation and incentive to work
Personal touch with the customers
Secrecy
Social advantages
The following are the limitations of sole proprietorship:
Limited financial resources
Limited managerial ability
Unlimited liability
Lack of continuity
In spite of the above limitations, this form of business organisation
occupies a prominent place in the business world. In advanced and in
developing countries such as India, it plays an important role.

18. PARTNERSHIP ORGANISATION
Partnership organisations grew and gained importance as an individual is
not competent enough to possess enormous capital and knowledge or
competence to manage everything. With the expansion of business and
enlargement of the scale of its operations it became necessary for a group of
persons to join hands together and supply the necessary capital and skills.
According to the Indian Partnership Act, 1932. Section 4 of this act defines
partnership as “ the relation between persons who have agreed to share
profits of a business carried on by all or any of them acting for all.”
Persons who enter into partnership are collectively known as firm and
individually known an partners.
Here are the basic features of a partnership organisation:
Number of persons
Contractual relationship
No legal distinction between a firm and its partners
Unlimited liability.

19. The advantages of partnership organisation are as follows:
Easy formation
Flexibility
Pooling of resources and skills
Division of risk
Strong credit position
Less incidence of tax
Encouragement of mutual trust, personal element in the business
The disadvantages of partnership organisation are as follows:
Limited resources
Unlimited liability
Instability
Lack of harmony of interest
Partnership organisations grew essentially out of the failures and
limitations of sole proprietorship. Small entrepreneurs often lack the
capital or competence to manage an enterprise entirely by
themselves, hence partnerships helped to solve this issue. About 35%
of the small scale industries in India existed as partnership
organisations.

20. CO-OPERATIVE SOCIETY
A co-operative society is essentially an association of persons who
join together on a voluntary basis for the furtherance of their
common economic interests.
The International Labour Organisation (ILO) defines a cooperative as
“an association of persons usually of limited means, who voluntarily
join together to achieve a common economic end through the
formation of a democratically controlled business organisation,
making an equitable contribution to the capital required and
accepting a fair share of the risks and benefits of the undertaking.
This type of organisation has not made much of an appreciable
impact on the small-scale industrial sector. Of the total small-scale
units, only 0.7% are organised as co-operative societies.

21. The advantages of co-operative societies are as follows:
Easy to form
Open membership
Democratic management
Limited Liability
Stability
Economical operations
Government patronage
Low management cost
Mutual co-operation
No speculation
Economical advantages
Service motive
Internal financing
Income tax exemption
Durability
Cheaper goods
State patronage
Elimination of middlemen
Equality
Perpetual existence
Scope for self-government

22. The disadvantages of co-operative resources are as follows:
Limited capital
Inefficient management
Absence of motivation
Differences and factionalism among members
Rigid rules and regulations
Lack of competition
Cash trading
Lack of secrecy
Weightage to personal gains
Lack of incentive and initiative
Corruption
Limited consideration
High interest rate
Undue government intervention
Difference of opinions among the members
Lack of expertise
State control
Lack of loyalty
Lack of understanding of the principle of co-operative societies
Lack of universal applicability.

23. JOINT-STOCK COMPANY
Definition: A company is a voluntary association of persons who contribute
to its capital but their liability remains limited. It carries on business for
profit as a legal entity. It can sue and be sued in its own name. Thus a
corporation is an artificial being, invisible, intangible and existing only in the
contemplation of law. Being a more of a creation of law, it possesses only
those properties which the charter of its creation confers upon it, either
expressly or as incidental to its very existence.
The growth of joint-stock companies constitute an important step in the
historical evolution of forms of ownership of business enterprises. With the
enlargement of the scale of operations, it became difficult for a sole trader
or partnership firm to cope with the problems of finding more resources and
arranging for more specialised management.
A joint-stock company exists as a separate legal entity quite apart from
that of the members comprising the organisation unlike a partnership. In
other words, the company is considered to be a ‘person’ in the eyes of the
law. Also these companies possess the rights to own and transfer property.

24. COMPARISON OF
DIFFERENT FORMS OF
OWNERSHIP
Including Private limited
and Public limited
companies.

25. Basis of
comparison
Sole proprietorship Partnership
organisation
Private limited
company
Public limited
company
Formation Easiest, no legal
formalities.
Easy, only an
agreement is required.
Difficult, some legal
formalities are
present.
Very difficult,
several legal
formalities are
there.
Registration Not necessary Optional Compulsory Compulsory
Membership One man show single
membership.
Minimum of 2
participants, maximum
of 10 people in
banking and 20 in
others.
Minimum: 2
Maximum: 50
Minimum: 7
Maximum: not limit.
Legal status No separate legal
existence
No separate legal
existence.
Separate legal entity Separate legal entity
Liability of
members
Unlimited, full risk Unlimited, joint and
several, risk shared.
Limited Limited
Financial
capacity and
suitability
Limited capital
suitable for small
business.
Pooling of capital
suitable for medium
size.
Large capital,
suitable for medium
scale business.
Very large capital
suitable for large
scale operations.
Sharing of
profits
All to the owner As per the agreement
made
On the basis of the
shares held.
On the basis of the
shares held.
Winding up At will At will Under the act Under the act

26. Basis of
comparison
Sole proprietorship Partnership
organisation
Private limited
company
Public limited
company
Management
and control
Quick decisions, no
specialisation,
management and
ownership lie in the
same hands.
Unanimous decisions,
limited specialisation,
management lies
where ownership is.
Board decisions,
greater
specialisation,
ownership and
control go together.
Board decisions,
specialisation,
divorce between
ownership and
management.
Business
secrecy
Perfect secrecy, no
audit or reports.
Secrets limited to
partners, no audit or
reports.
Shared secrets
among members,
audits and reports
are compulsory.
Secrets shared with
public, audits and
reports are
compulsory.
State regulation
and flexibility
Practically none, full
flexibility of
operations
Sufficient flexibility Considerably limited
flexibility, privileges
and exemptions.
Excessive, no
flexibility.
Transferability
of interest
At will With mutual consent Restricted as articles
of association
Freely transferrable
Tax burden Low at small level of
income, progressive
rate.
Low at small level of
income, progressive
rate.
Low at medium rate
of income, flat rate,
double taxation.
Low at high rate of
income, flat rate,
double taxation.
Stability or
continuity
Unstable, fully
dependent on the
owner.
Less stable, maybe
dissolved by death,
insolvency, etc. of a
Perpetual existence Perpetual existence

27. SELECTION OF AN APPROPRIATE
OWNERSHIP STRUCTURE
The selection criteria for a proper form of organisation is crucial for
the success of a business enterprise. Every entrepreneur has to
decide, at the outset, about the type of organisation which he plans
to select for his private enterprise. It is an important entrepreneurial
decision. This choice is by and large influenced by the socio-cultural
norms and then prevailing industrial environment.
The decision of an entrepreneur depends on a number of variable
factors. Among the many, the following factors are given weightage
in making a choice of a suitable form of organisation which is most
suited to one’s enterprise.
The deciding core factors are as follows:
Type of business- service, trade, manufacturing.
Selection of industry and area of operation.

28. Amount of capital funds required- initial capital, working capital.
Possibility of raising resources from the market- institutions, subsidies and other
incentives.
Costs and procedures and relative freedom from government regulation.
Comparative tax advantages.
Size of the risk.
Continuity of the enterprise.
Degree of direct control and adaptability of administration.
By and large, the final organisational choice is a compromise that is
most suitable to the entrepreneur’s needs. The above ten factors are
the major factors that will influence the choice of a proper form of an
organisation, which will withstand all the stresses and pressures and
strive for its smooth progress on an ongoing basis.
The aim of entrepreneurial development programmes in India
should not be to treat the small entrepreneurs as small, but to help
the more promising and efficient ones among them to grow big. This
will mobilise the productive resources of the country, contain the
monopoly of a few large enterprises, and increase income, profits and

29. THANK
YOU