4.1 Introduction
In the previous tutorials
you have learnt about the nature of business activities, the types of business
in which individuals and groups of individuals may be engaged, and the
different forms in which business activities may be organised. You know in
business field a variety of goods and services are dealt with in small shops,
large stores, small workshops and large factories. Have you ever enquired how
these business activities were started? Who started them and what kind of ideas
they had while taking their decision to set up a business? Certainly, some individuals or groups of
individuals must have thought of those businesses to start with. If your family in running a business, it is
possible that your father or grandfather thought about it and then took steps
to set it up. If it is a manufacturing
business, a factory building must have been constructed, machinery, supply of
raw-materials must have been arranged, workers recruited and availability of
power, water, etc., also assured. For
all these purposes, those who started the business must have arranged capital
to meet the necessary expenditure. In other
words, every business is the brain child of someone. That someone is called 'entrepreneur', In
this unit, you will learn who an entrepreneur is, what are the characteristics
and functions of an entrepreneur, the role of an entrepreneur in business promotion,
difference between entrepreneur and promoter and various types of promoters.
You will also learn how various forms of business organisations are promoted
and what steps are taken by promoters to set up the business.
4.2 An Entrepreneur
An entrepreneur
is one in whose mind the idea of doing business of a particular type first takes
shape. He is on the lookout for business opportunities and is a good judge of
which products will sell. He is imaginative and is guided by a strong sense of
achievement. He is not afraid of future uncertainties. He is prepared
to take risk and face challenges. Above all, an entrepreneur is one who creates
something new, something different. He innovates and combines resources in the
form of men, materials and money and brings them together to make the business
venture profitable.
4.2.1 Entrepreneurship
What the
entrepreneurs do may be regarded as 'Entrepreneurship'. In other words, entrepreneurship
is the act of being an entrepreneur. The word entrepreneurship is actually derived
from the French term 'entrepreneur' which means to undertake, to pursue opportunities,
to fulfil needs and wants of people through innovation and starting business. The
entrepreneur is the person who does all this. He undertakes a venture,
organises it, raises capital to finance it and assumes the whole or major part
of the risk of business. Thus, 'entrepreneurship is the process of giving birth
to a new business'.
Innovation and risk bearing are the two basic elements of entrepreneurship.
Hence you must know the exact connotation of these terms.
Innovation: If a business activity does not
require anything special to be done, it is not entrepreneurship. In fact a
person cannot be called an entrepreneur unless he introduces something new,
something different, in his venture. This is known as innovation, that is, doing
something different from others. The entrepreneurs are constantly on the look
out for something unique to fulfill the need or want of people. They may or may
not be inventors of new products or new methods of production, but they are
able to foresee the possibility of making use of the invention for
business. Others who come to know about the same invention are not capable of
thinking about its practical usefulness in business. Or, they may not have the
ambition or self-confidence to take advantage of it.
In a competitive
market, an entrepreneur can succeed in his business only through innovation. An
innovation need not necessarily be something big or dramatic. A simple adjustment
to something old, or giving a service without extra charge while selling a product,
or a colorful packaging, or selling a product in packets of different weights,
and such types of steps may be profitable innovations. Of course, if similar
things are done by a number of producers and sellers, an entrepreneur has to
think of other types of innovations. Thus some innovations may lead to other
innovations. No wonder that imagination is sometimes more important than
knowledge for innovative thinking. An entrepreneur must have imagination and
also the ability to think creatively.
Take the case of
fruit juice. Now a days, fruit juice is sold in small cartons instead or
bottles so that you can carry it and throw away the container after drinking
the juice. This is innovation. Let us take another example. You may have heard
of Henry Ford who established the Ford Motor Company in the United States. He
did not invent the automobile, but he applied new methods of mass production
and turned out passenger cars at low cost so that many people could afford it.
Risk Bearing: Risk bearing is another aspect of
entrepreneurship that every entrepreneur has to cope with. One who is an
entrepreneur must be a risk taker, not a risk-avoider. In fact starting a new
business always involves risk because money is invested for profits in future. To
try anything new is also risky. A new venture may not bring the expected
profits or may fail and run into losses. It may happen because of increasing
competition, a change in customer preferences, shortage of raw material supply,
or sudden unexpected calamities. But an entrepreneur is bold enough to assume
the risks. He is prepared to take risks for the reward. Even if he fails in one
venture, he persists, and this helps him to succeed.
4.2.2 Characteristics of an Entrepreneur
If you read
business history, you will come across the names of many persons who may be called
entrepreneurs. Rockfeller and Henry Ford of the United States, Karl Benz and Gottfried
Daimler of Germany, Soichiro Honda of Japan, are well-known names of entrepreneurs,
who started industrial organisations and made fortunes, In our country,
J.N.Tata, G.D.Birla, Kirloskar and others have set up successful manufacturing
industries. Small business firms have often succeeded because of the part
played by entrepreneurs. It may be useful to know whether they had anything
common as regards their personal characteristics. It has been found that there
are certain elements in the character of entrepreneurs which are usually
prominent in them.
1. Independence: Many
entrepreneurs who started their businesses resisted being pigeonholed or
Following routine habits. In fact, entrepreneurs become frustrated when they
have to follow someone else's direction. They have to be the boss. They like to
be in control. They find it difficult to work under the direction of others.
2. Hard Work: Willingness to work-and
work hard-is an outstanding trait of entrepreneurs. You can bet that the
successful business owner has paid with tedious, sweat-filled hours, emotional
stress, and perseverance. Most likely the business verged on failure many times
in the beginning, but the owner simply would not let it die. A successful
entrepreneur described his early experiences that they worked endless, twelve hour
days and sometimes seven days a week. You might say it was his whole life.
3. Desire-to Achieve Goals: They have
a strong desire to overcome problems and setting up successful business
ventures which eventually give adequate profits. They considered profit as a
measure of their achievement and performance rather than making money alone.
4. Foresight and Dynamic Outlook: Basically,
these people have wide knowledge about business environment i.e., market,
consumer attitude, technological development, etc. Further, they are dynamic in
forecasting business uncertainties and risks, accordingly, they take quick and
sound decisions.
5. Open-mindedness: They are intelligent
in predicting changes in business environment. However, they never resist
changes because they know that they cannot stop it. Therefore, they are
habituated to open-mindedness even though sometimes they lose crores of rupees
due to changes in consumer tastes which ultimately forced them to change their
technology, etc.
6. Optimistic Outlook: They are
generally inclined to believe that present problems are of a temporary nature
and conditions will be more favourable in due course. Entrepreneurs are always
eager to achieve their goals in the best possible manner, to get outstanding results
which they can be proud of.
7. Working Relationship : The
success of a business mostly depends upon its workers first rind then their
links with other business undertakings. Most of the successful business
entrepreneurs have had harmonious relationships with others. This builds up their
reputation in the market.
8 Good Organisers : They are good at
bringing together different types of resources needed for starling a business
and making it operationally efficient. They can convince people about the
prospects of business, get their cooperation, raise funds, procure machinery,
arrange supply of materials, select right type of employees and coordinate various
activities relating to the business.
9. Innovative Aptitude: Most
of the successful entrepreneurs have innovative aptitude. They spend part of
their income on research and innovative activities so that they offer suitable
products to meet the demands of consumers. Some of our industrialists like Tata,
Birla, Kirloskar, etc. have established their own research centres.
4.2.3 Functions of an Entrepreneur
Having read the
preceding pages of this unit, you must have started thinking about the functions
of an entrepreneur. Essentially, what the entrepreneur does is to recognise the
possibility of starting a business which may be profitable. Then, he prepares a
plan of action, and steps to be taken to set up the business, and eventually
undertakes the operation of the business. Of course, depending upon the nature
of business that is in view, the functions will differ. Let us see functions of
an entrepreneur who is looking for Opportunities to engage in production
activity.
1. Develops an idea and
explores opportunities: The idea of forming an business unit is first formed in the creative mind
of the entrepreneur. On the basis of the idea he perceives opportunities for
profitable investments and explores the prospects of starting a manufacturing
enterprise.
2. Product analysis and market
survey: He collects data
on consumer preferences and needs through market research techniques and to
find out the salability of the proposed product. Further, he collects consumer
preferences in respect of design, colour, size, and shape. In addition, the
entrepreneur gathers the total demand and the degree of competition for the
proposed product.
3. Decides form of
organisation: He decides the
form of business ownership, i.e. whether it should be a sole proprietorship, a
partnership firm, a company or a cooperative society.
4. Decides location: He decides location of
the factory at a suitable place taking into account the available facilities of
transport, power-supply, fuel, water, labour, supply of raw-materials, nearness
of market, etc.
5. Collects necessary capital: He makes available sufficient amount of capital for the initiation and
continuation of the business. He gives personal guarantees to the financiers who
contribute capital. Otherwise, he promises to invest capital himself or arrange
the necessary amounts from friends and relatives. In case of small enterprises,
the promoters can provide funds from their own savings. But in case of large
enterprises, funds have to be raised from various sources like general public,
commercial banks, financial institutions, etc.
6. Places orders for machinery: He places orders
for machinery, equipments and other requirements. He takes decision about the
installation of equipment and machinery in the process of production.
7. Recruitment of labour: As an entrepreneur he makes an
estimate of skilled and unskilled workers of .different categories required for
various departments. Accordingly, the entrepreneur arranges their recruitment.
8. Designs internal
organisation structure: He designs internal organisation structure for his proposed
concern. This involves breaking up of the total work of the enterprise into major
functions like production, marketing, finance, personnel, purchase,
engineering, etc. and the dividing of each of them into sections. He stipulates
the functions of different departments and their inter-relationships.
9. Fulfils formalities and
launches enterprise: Every
type of business has some procedural formalities while starting a new
enterprise. The formalities are different for different types of business
organisations. Unless you fulfil them you cannot simply launch an enterprise.
You will learn about procedural formalities later in this unit.
Thus, the role of
an entrepreneur is that of an initiator and promoter. In a sense, the role of an
entrepreneur is also that of an expert having knowledge of product, market
conditions and of the practical aspects of running a business. He should not be
simply an imaginative thinker but also have the ability to judge what kind of
business will click. His role is indeed crucial for the eventual success of a
business. When an enterprise has been launched and it turns out to be
profitable, the entrepreneur may decide to leave it, give up his ownership tights,
and hand it over to others to run it. Many entrepreneurs in the past have done
so. They have been attracted by new opportunity and more profitable lines of
business. But many entrepreneurs have continued to run the business they
started taking every opportunity of expanding the original venture, adding new
activities, making current operations more efficient, and deriving satisfaction
from their achievements.
But you will
agree that it is the initial phase which is most important for the success of a
venture. It is at this stage that the future of a business is decided. The
basic responsibilities of an entrepreneur include the ability to seize an
opportunity, to innovate, explore the, prospects of profitable business, and
then to complete legal formalities, raise, funds and finally manage the
business are the basic responsibilities 'of the entrepreneur. He has to face many
obstacles, many problems and difficulties in the course of promoting business.
He has to take decisions which may have long-run implications. An entrepreneur
has thus to undertake many things. But the most important of these are: (i)
innovation, and (ii) risk-bearing.
4.3 PROMOTION
A business
enterprise does not come into existence on its own. It is the result of the
efforts of an entrepreneur who conceives the idea based on his knowledge of
business opportunities and takes necessary steps to launch the business
venture. He is also known as promoter. As a promoter, he assembles the required
funds and people, and serves both as a mother and mid-wife to the enterprise.
Thus, the promoter is the Kingpin of business as he/she undertakes the risk and
gives a concrete shape to business propositions. Promotion may be undertaken
for the purpose of setting up a new business, for the expansion of an existing business,
or for combing two or more business firms.
4.3.1 Distinction between Entrepreneur and Promoter
Sometimes a
distinction is made between 'entrepreneurs' and 'promoters' of business. Those
who are innovators and risk-bearers are strictly known as 'entrepreneurs' while
those who take steps to set up the business and make it operational are known
as 'promoters'. In actual practice, however, this distinction does not hold
good. Entrepreneurship (act of entrepreneurs)
does not remain confined only to recognition of business opportunities and preparedness
to do something new. It does not end with the entrepreneur undertaking to bear the
risks of business. It includes planning for the business and taking necessary
steps to put it into operation. After all, a business becomes a business only
when it gets going. Thus, in a wider sense we cannot make a difference between
the role of an entrepreneur and the role of promoter.
4.3.2 Types of Promoters
There are various
types of promoters. They are classified as professional promoters, financial
promoters, entrepreneurial promoters, institutional promoters and government.
1. Professional promoters: These are specialists in forming new business enterprises. After promoting
an enterprise they eventually handover the control and management to the
shareholders of the company.
2. Financial promoters: These promoters float new enterprises during favorable conditions
in securities market. They are people who have financial stability and are looking
forward to new opportunities for investment.
3 . Entrepreneurial promoters: These promoters conceive the
idea of a new business unit, do the necessary preliminary work in setting up
the business unit and ultimately control and manage the same. In India most
promoters belong to this category.
4. Institutional promoters: There are some specialised institutions like Industrial Development Bank
of India, National Industrial Development Corporation, etc., which are
providing technical, managerial and financial assistance for the promotion of
new enterprises. These institutions collaborate with other entrepreneurs to
launch the enterprises.
5. Government: Since independence, Government of India has emerged as a big promoter of
enterprises. It has promoted several enterprises in different fields such as
ordnance factories, heavy eleclricals, shipping, iron & steel, fertilizers
and pesticides, oil and natural gas, etc.
4.4 PROMOTION OF DIFFERENT TYPES OF
ORGANISATIONS
You have already
studied the role of an entrepreneur in setting up a business. The promoter decides
the product or service which has a market, and then takes necessary steps for launching
a business venture. Before launching the business enterprise, the promoter
takes decision about the form of business ownership. Will it be under single
ownership or joint ownership? If it is to be under joint ownership, will it be
a partnership organisation or a joint stock company? The steps that he has to
take in launching the business will naturally depend upon the form of
organisation. The formalities-particularly the legal formalities necessary to
start the business will be different in each case. Let us first see what is
required to be done to promote a business venture under single proprietorship
and partnership firm.
4.4.1 Proprietary Concern
When a business
is decided to be set up under single ownership, there is practically no legal formality
involved. Of course, to run certain types of business activities permission has
to be obtained from the Government or local authorities. For instance, to open
a restaurant, the individual proprietor has to get the permission from the
Health Department of the Municipal Corporation. To start a
workshop or factory, the proprietor must get the permission of the Director of
Industries through the District Industries Centre. A business may also be owned
by a Joint Hindu Family. In such a business, the head of the family,
known as Karta has full control over the income and expenditure
of the business. and controls the business activities just like an individual
proprietor. In fact, a joint hindu family business generally comes into existence
when the head of the family dies and the members of his family decide to
continue the family business through the senior most member of the family. This
form of organisation of business also does not require any legal formality.
4.4.2 Partnership Firm
You know that
partnership is the relatioiship between two or more persons who have agreed to
share the profits of a business. The business may be carried on by all or by
any of them acting for all. Collectively those persons are known as 'a firm'
and individually they are known as 'partners'. The agreement between the
partners may be oral or in writing. A partnership business comes into existence
as a result of an agreement between two or more persons. Hence, a partnership
firm has no separate existence in the eyes of law. It has no independent legal
existence. No legal formality is, thus, required to launch a partnership business
and to run it.
However, if the
partners desire, a partnership finn can be registered with the Registrar of Firms
by filling up a form of application. A fee of Rs. 3 is to be paid
for that purpose. Registration of partnership is not compulsory under the law.
But it is desirable because an unregistered firm is not permitted to file a law
suit or start other legal proceedings against any third party to recover its
claims. Moreover, no partner of such a firm can file a suit to enforce his
rights against other partners under the partnership agreement, although third parties
can, file suits against the firm as well as the partners.
Before starting a
partnership business, the partners come to an agreement about their mutual rights
and obligations. If it is an oral agreement there is always a possibility of misunderstanding
or dispute among the partners as regards their respective rights and liabilities.
To avoid any dispute in future, it is advisable that the agreement should be in
writing. The written agreement is known as 'partnership deed'. It should be
drawn on a stamped paper and signed by all the partners. The partnership deed
should contain the nature and place of business, duration of partnership,
capital to be contributed and share of profits of each partner, rights, duties
and obligations of partners, salary payable to any partner, and all such
clauses as may be agreed upon.
4.4.3 Joint stock company
You have learnt
that a company is an association of persons. So, there must be more than one
person to slart a company. A partnership firm also must have more than one
person involved in the business. But legally speaking, a partnership firm has
no existence apart from its partners. On the other hand, a company after it is
formed acquires a separate legal identity. It is regarded in law as a separate
entity distinct'from the members who join it. Because of this feature, the
promotion of a company requires a number of legal formalities to be completed
before it can be established. One or moie promoters can take the responsibility
of bringing a company into existence. The Indian Companies Act, 1956 contains
provisions regarding the legal formalities for setting up a company. You know
that from the point of view of ownership, mainly two types of companies can be
formed under the Companies Act-private company and public company. The
promoters have to decide which type of company they would prefer to form. For
the purpose of running a business, promoters generally want that the liability
of members should be limited to the amount of capital that they agree to
contribute.
Accordingly, the
company decided to be set up may be a private limited company or a public
limited company. Whether it is a private limited or a public limited company,
it is necessary that the company is duly registered under the Companies Act.
The official appointed for the registration of companies is the Registrar of
Companies. For each State or group of States in India, there is a Registrar of
Companies. For instance, there is a Registrar of Companies for the Union
Territory of Delhi and Haryana. His office is in New Delhi. Let us see
what the promoters have to do for the registration of a company,
Registration of a company
Registration of a
company is also known as incorporation. A company is said to be incorporated
when it receives the certificate of incorporation from the Registrar of Companies.
The certificate of incorporation is a conclusive proof of the fact that a
company bearing a specific name has been lawfully formed. The promoter has to
take the following steps for obtaining the Certificate of Incorporation---
1. Selecting a name for the company
2. Preparation and printing the documents
to be filled
3. Filing the documents with the Registrar of Companies
Let
us now take up these aspects one by one.
1. Selecting a name: Every company to be
registered should have a name by which it will be known for legal and business
purposes. The promoters generally select a few names and ascertain from the
Registrar's office whether these names are available. For this purpose an
application on a prescribed form is submitted to the Company Law Administration,
Government of India, through the Registrar of Companies for approval. The
promoter can then adopt any name from the list of approved names. It is also necessary
to include the words 'Limited' and 'Private Limited' in case of public limited company
and private limited company respectively.
2. Preparation and printing of documents:
After the name of the company has been approved and adopted, the promoters have
to get the following two documents prepared and printed
:
a) Memorandum of Association
b) Articles of .Association
Memorandum
of Association: It is the most important document of a company
as it lays down the constitution of the company and states the relationship of
the company with the outside world. It is a public document and each person who
deals with the company is supposed to know the provisions contained in the
memorandum. The purpose of memorandum is to enable the shareholder, creditors
and those who deal with the company to know what is its permitted range of
activities. Although the company is a legal 'person' its capacity to do
business, unlike that of a real person, is restricted. If a company is engaged
in any trade or business which is outside the provisions of the Memorandum of
Association, such acts are regarded ultra vires of the company and
therefore, void and inoperative.
The
Memorandum of Association contains the following particulars under different
clauses.
i)
Name of the company
ii)
Name of the state in which the registered office is to be located.
iii)
Objects clause- The nature of business activities which the company will
undertake is to be stated in this clause.
iv)
A declaration that the liability of' the members will be limited to the face
value of shares subscribed.
v)
Capital clause-The total amount of capital with which the company is proposed
to be registered and its divisions into different shares of a fixed amount are
to be stated under this clause.
vi)
A declaration by signatories to the Memorandum that they are desirous of being formed
into a company and agree to take the number of shares mentioned against their names.
The
Articles of Association: It contains
the rules and regulations relating to the management of its internal affairs.
They define the rights, powers and duties of the management, the mode and form
in which the business of the company is to be carried on and the manner in
which changes in the internal regulations of the company may be made from time
to time. Articles lay down the relations between the company and its members and
between the members. A public company limited by shares may register its own
Articles of Association or adopt Table A containing the model set of 99 articles
given in Schedule I of the Companies Act. Other types of companies must prepare
and file their own Articles of Association along with the memorandum at the
time of incorporation. The Articles of Association must not contain anything
contrary to the Companies Act, the public policy, the Memorandum of Association
and the general law of the land.
3. Filing of documents for registration: After
preparing and printing the Memorandum of Association and Articles of
Association, the promoters make an application to the Registrar of Companies
and file the following documents :
i)
A copy of the Memorandum of Association
ii)
A copy of the Articles of Association
iii)
A-list of persons who have agreed to become director of the company with their names,
addresses, age and occupations. In case a separate list of directors is not filed,
signatories to the Memorandum of Association will be deemed to be the directors.
iv)
Written consent of the directors to act in that capacity, duly signed by each
director, along with a written undertaking to take the prescribed qualification
shares, if any. A company without share capital and a private company need not
file this document.
v)
A statutory declaration stating that all the legal requirements with respect to
incorporation have been duly complied with, This declaration should be signed
by an Advocate of a High Court or of the Supreme Court, or by a practicing
chartered accountant or by a person named as director, manager, or secretary of
the company.
vi)
Notice of the registered office of the company. However, this notice may be
filed within 30 days of incorporation.
Along
with the above documents, the Memorandum of Association and the Articles of Association
must bear stamp duty as per the Indian Stamps Act. The promoters have also arranged
payment of registration fees and filing fees at the time of submitting the application.
If the Registrar upon scrutiny of the documents finds them to be in order, he issues
the certificate of Incorporation in favour of the company. The company becomes
a separate entity in law when it gets the Certificate.
Commencement
of Business
A
private limited company can commence business activities as soon as it is
registered. The promoters of such a company raise the amount of capital
necessary from their friends and relatives either against shares issued or in
the form of loan. The general public cannot be invited to contribute to the
capital.
For
a public limited company, however, business activities cannot be started
immediately after registration. It has to obtain a Certificate of Commencement
of Business from the Registrar of Companies for which a number of additional
steps have to be taken by the promoters. They are as follows :
1. Preparation and registration of Prospectus or
a Statement in lieu of Prospectus: After the company has been incorporated, it
is necessary for the directors to raise necessary capital for the company.
Generally, shares of fixed amount are decided to be issued to the public to
raise the amount of capital required. The document which is prepared to invite
the public to subscribe to the shares of the company is known as Prospectus. In
fact, the prospectus includes all such information about the company which may
be of interest to the people who are likely to subscribe to the capital. The content
of the prospectus have been specified in the Companies Act, so that the promoters
may not suppress anything or mislead the public. A copy of the prospectus is required
to be filed with the Registrar for registration before it is issued to the
public.
A
private limited company does not have to issue a prospectus to raise its
capital since it is not permitted under law to invite the public to subscribe
to its shares. However, it is not compulsory even for a public limited company
to issue prospectus unless it decides to approach the public for raising its
capital. If the promoters decide not to approach the public for raising the
necessary capital but to arrange subscription of capital by their friends or
relatives or through underwriters, it is not necessary for them to issue a prospectus.
In that case, a Statement in lieu of Prospectus must be filed with the Registrar.
The contents of such a statement are virtually the same as those of a Prospectus.
The Statement must be signed by all the directors of the company and filed with
the Registrar.
2. Subscription and Allotment of Shares: If
public offer for sale of shares and debentures exceeds Rs. 1 crore, the company
must obtain the permission of the Controller of Capital Issues, New Delhi.
After obtaining such permission and the registration of prospectus with the
Registrar, the company can invite public to subscribe to its shares. The companies
usually appoint brokers through whom they approach the public for subscription.
The brokers issue prospectus and application forms to the prospective investors.
The company also appoints some banks who receive the applications from the public
along with the application money and credit the amount to company's account specially
opened for the purpose. After the issue is closed, the Board of Directors
decide the basis of allotment in consultation with the stock exchange
authorities and pass a formal resolution for allotment. On the basis of the
resolution the Secretary of the company issues letters of allotment to the
subscribers. If the subscription exceeds the amount of capital to be raised,
the excess is refunded to the subscribers involved. After the allotment
exercise is over, the Secretary submits a Return of Allotment to the Registrar
of Companies.
One
of the important conditions to be fulfilled by a public limited company before it
can apply for the Certificate of Commencement of Business is that it must have
received share applications for the minimum subscription as indicated in
the prospectus. Minimum subscription is defined as the minimum amount which in
the opinion of the directors (or the signatories to the memorandum) must be
raised by issue of shares to meet the following expenses :
i)
purchase price of any property bought or to be bought which is to be paid out
of the
proceeds
of the share issue;
ii)
preliminary expenses;
iii)
repayment of money borrowed in respect of the above matters;
iv)
working capital required; and
V)
any other payment that may be specified.
If
the amount of capital subscribed by the public is less than the minimum
subscription or the company could not obtain minimum subscription within 120
days of the issue of prospectus, all money received from the applicants have to
be refunded and no allotment can be done.
3. Declaration of Compliance: When all the
formalities in respect of the public issue have been completed, the company
will have to file a statement with the following declarations with the
Registrar :
i)
That
the shares payable in cash have been allotted up to the amount of minimum subscription
as stated in the prospectus.
ii)
That every director has paid in cash the application and allotment money on his
shares in the same proportion as others.
iii)
That no money is liable to become refundable to the applicants by reason of
failure to apply for permission for shares and debentures to be dealt in on any
recognized stock exchange.
iv)
The statutory declaration by the Secretary or one of the directors that the
above requirements have been complied with.
A
company
which has not issued a prospectus can submit the declaration immediately after the
statement in lieu of prospectus has been filed and other conditions have been
fulfilled. A private limited company is not required to submit any declaration,
as it is permitted to commence business, immediately after incorporation of the
company. The Registrar of companies will scrutinise all these documents and if
satisfied, he shall issue a 'Certificate of Commencement of Business'. After
this, the company is entitled to commence business and borrow money from the
date of issue of the certificate. Look at Figure 4.1. It gives a bird's eye
view of the procedure involved in the formation of private and public limited
companies.
4.4.4
Cooperative Society
We
have so far discussed the promotion of business organisations of three types: proprietary
concerns, partnership firms and companies, There is another form of
organisation which is quite common these days, i.e. cooperative society. A cooperative
society is a form of organisation wherein persons voluntarily associate together
on the basis of equality; They pool their resources and work together. They
undertake production or distribution of goods and services with the motive of
mutual benefit rather than profit.
You
know that at least ten persons are required to form a cooperative society.
Every cooperative society must register itself with the Registrar of
Cooperative Societies, appointed by the Government under the Cooperative
Societies Act. The promoters of a
Cooperative
Society have to take the following steps to get it registered :
1. Make an application to the Registrar of
Cooperative Societies stating in it the name of the proposed society, its
objects, and particulars about its share capital.
2. Prepare the Bye-laws ( rules and
regulations) of the Society (similar to the Articles of Association of a
Company) to be submitted along with the application for registration of the
society.
3. The application and the Bye-laws have to be signed
by the promoters. The Registrar scrutinises the objects and bye-laws and, if he
is satisfied, issues a 'Certificate of Registration'. The name of the society
is entered in the Register of Cooperatives. Thereafter, the society becomes a
separate legal entity just like a company. It can acquire assets in its own
name, enroll new members, and engage in its business activities. Thus, the
promotion of a cooperative society does not require many legal formalities to
be complied with. The promoters can set up a cooperative society with 'Limited'
liability of its members. But it can be registered only if its object is to
serve the economic interest of its members through mutual help. There is no
maximum limit fixed as regards the number of members for the cooperative
society. Its shares are not transferable. Since, the policy of Government is to
encourage development of cooperative organisations, certain concessions are
given to cooperative societies, such as exemption from registration fee and
stamp duty, income tax, etc.
4.5
LET US SUM UP
Entrepreneur
is a person who undertakes the risk of starting and managing a business by bringing
together necessary resources. He conceives the idea of starting an enterprise
and explores the prospects of starting a new enterprise. He arranges everything
required to set up a business unit i.e., funds, land, people, machinery. The
entrepreneur retains strong values of independence and is motivated to work
harder than the most people. He is not afraid of ' future uncertainties. He is
always optimistic in outlook and dynamic in taking decisions. He always tries
to introduce something different from others in his venture. Innovation and
risk bearing are the two basic elements of entrepreneurship.
Promoters
can be divided into professional promoters, financial promoters,
entrepreneurial promoters, institutional promoters and Government. Entrepreneur
decides the form of business ownership and takes necessary steps in launching
the enterprise.
The
formalities required to start an enterprise are different for different
organisations. The promotion of a sole trading concern does not involve many
legal formalities. The same thing is true of a partnership firm. The
registration of firm is not compulsory but it is considered desirable because
otherwise it suffers from certain disabilities. Promotion of a joint-stock
company involves a number of legal formalities. It must be registered with the
Registrar of Companies. After selecting a name for the proposed company and
getting it approved by the Government, the promoter has to arrange the preparation
and printing of the Memorandum of Association and Articles of Association for the
company. Then he files an application submitting these two documents, a list
and the consent of directors and a statutory declaration to the effect that all
formalities have complied with. He also pays the registration fee. If
everything is in order, the Registrar issues a Certificate of Incorporation. A
private limited company can commence business as soon as it receives
this certificate. But a public limited company cannot start its business until
it gets the Certificate of Commencement of Business. For this again the company
has to comply with a number of formalities including issue of prospectus,
raising the capital, submitting returns of allotment and a statutory
declaration that all conditions have been duly satisfied.
A
cooperative society is also a corporate body and involves certain legal
formalities before it is registered by the Registrar of Cooperative Societies.
But as compared with a company the procedure for its registration is much
simpler.