FYBCOM Commerce Sem 1 Chapters 7 Notes | FYBAF | FYBMS | Mumbai University

FYBCOM Commerce Sem 1 Chapters 7 Notes
(Business Unit Promotion)

1) What are the steps or stages involved in setting up of a Business unit?

Answer : Business unit promotion refers to all those activities relating to setting up and promotion of business units. Business promotion simply refers to all those activities that are required to be undertaken to establish a new business unit for manufacturing or distribution of any product or provide any service to the people. This involves ascertaining as to whether all the basic requirements such as land, building, raw materials, machine, equipments etc.

i) STAGES OF BUSINESS UNIT PROMOTION : The following are the main stages in setting up of a business unit.

1) Discovery of business opportunity :
The task of a promoter starts with his conception of a business activity. Here, the promoter considers available business opportunities and selects the one which is most promising and can be used with limited risk. The promoter also considers the capital requirement for the proposed business activity.

2) Size of the business firm :
The decision about the size of the firm i.e. the scale of operations needs to be taken after finalizing a specific promising opportunity for setting a business unit. The size of the firm is influenced by a variety of factors such as financial, technical, marketing, managerial and so on. The size decided should be most appropriate or ideal.

3) Location of a business unit :
Deciding suitable location is one major step in the setting up of a new business unit. Location means the selection of the region, area and the specific site where the proposed unit is to be located. Selection of the wrong location may prove costly for the business. The various factors that should be taken into consideration are easy availability of raw material and labour, nearness market, supply of power and water, availability of banking, warehousing and communication, transport facilities.

4) Selection of form of organization :
In this step, the decision is taken as regards the form of organization of the proposed enterprise. It may be organised as a sole proprietorship, partnership, Joint Stock Company or a co- operative society. While deciding a suitable form, various factors such as capital requirement, managerial skill requirement, size of the business and market available need careful consideration.

5) Financial and Tax Planning :
Adequate capital is essential for starting an enterprise and also for its smooth working. Appropriate financial planning ensures financial stability. The promoter should estimate the total financial layout which includes both fixed and working capital requirement and decide its sources. It depends on the form of organization, the areas where business is to be started as tax holiday and tax concession is given for units in hilly and backward areas.

6) Physical Facilities :
In this stage, the promoters have to decide the manner in which the physical facilities are to be arranged for a new enterprise. Promoters are expected to give attention to infrastructure facilities required by a new enterprise. Such as water, electricity, disposal of waste material, machinery, raw material, manpower, training of employees etc.

7) Legal formalities :
Setting up of a new enterprise particularly a large enterprise involves various legal formalities. Here, promoters have to study the legal provisions made by the government and local authorities for setting up of new business enterprises.

8) Organisation Structure :
Suitable internal organization structure is necessary for the conduct of business activities of an enterprise in an orderly manner. This avoids confusion, duplication of work and wastages of all kinds. While deciding organization structure, attention needs to be given to departmentation, delegation of authority and co-ordination among departments.

9) Manpower requirements :
In this stage, the promoters estimate the manpower requirement. It includes skilled and unskilled employees, supervisors, junior executives, managers, professionals and so on. Manpower is essential for efficient working of an organization, similarly, manpower requirement needs to be estimated correctly as the recruitment, selection, training and other human resources development activities are undertaken as per the manpower requirement estimated.

10) Launching the Enterprise :
At this final stage, the major portion of promotional work before starting a business enterprise comes to an end, and the actual work of starting the business activity starts. This includes the acquisition of land, the necessary construction work, purchase of machinery, tools and equipment, hiring of manpower, conducting production on trial basis etc.

2) Explain the factors affecting business location.

Answer : Business unit promotion refers to all those activities relating to setting up and promotion of business units. Business promotion simply refers to all those activities that are required to be undertaken to establish a new business unit for manufacturing or distribution of any product or provide any service to the people. Business firms need to select the best suitable location for setting up a business unit. Some of the important factors that affect location include the following.

1) Nearness to raw material :
Generally, raw material constitute around 50% to 60% of the total cost. Hence it would be advisable for the plant to be located near the source of raw materials. Nearness to the source of raw materials is of special importance when the material is bulky in relation to its value a when the volume & weight are greatly reduced during its processing.

2) Nearness to market :
Market is a place where products are sold. Nearness to market helps in reducing cost of transporting finished goods. It is possible to make goods available at the right time. It enables to render quick service and after sale service. Nearness to market is
preferred when the product is fragile, perishable or bulky.

3) Infrastructure facilities :
Availability of infrastructure facilities like power, water, transport & communication, banking facilities etc. are important determinants for business location. Unavailability or irregular supply or shortage of above factors could adversely affect the production process. Availability of infrastructure facilities increases the efficiency of an enterprise.

4) Law and order situation :
This is one of the most important factors, which business firm consider in locating a business unit in any region. For the smooth functioning of business activities, proper law and order situation is essential. In India, business firms are reluctant to set up business units in the North-Eastern States such as Bihar because of law and order problems.

5) Government policies :
The policies of the government like taxation policies, licensing policies, incentives such as subsidies provided etc. go a long way in deciding the location of the plant. For example government may announce tax exemptions to certain industries if they are started in certain areas. This may influence the location decision.

6) Safety Requirement :
Certain factories may affect the health of the public in neighboring areas where the plant is located. Therefore, such industries must be located in remote areas away from residential areas. For example, explosive factors must be located away from residential areas.

7) Social infrastructure :
Social infrastructure is required for the development of employees and their families. It adds to the welfare of employees. Social infrastructure facilities include residential complexes, educational institutions, hospitals and health care centres, recreation facilities and so on. Some companies such as TISCO have created such facilities of their own.

3) Discuss the role of government in business promotion.

Answer : The department of industrial policy & promotion was established in 1995. It has been reconstituted in the year 2000 with the merger of the Department of Industrial Development. Earlier Separate Ministries for Small Scale Industries and Agro and Rural Industries. Heavy Industries and Public Enterprises were created in October, 1999. The role and functions of the Department of Industrial Policy and Promotion primarily include as follows :

1. Formulation and implementation of industrial policy and strategies for industrial development in conformity with the development needs and national objectives.
2. Monitoring the industrial growth, in general and performance of industries specifically assigned to it, in particular, including advice on all industrial and technical matters.
3. Formulation of Foreign Direct Investment (FDI) policy and promotion, approval and facilitation of FDI.
4. Encouragement to foreign technology collaborations at enterprise level and formulating policy parameters for the same.
5. Formulation of policies relating to intellectual property rights in the field of patents Trademarks, Industrial Designs and Geographical Indications of Goods and administration of regulations, rules made there under.
6. Promoting industrial development of industrially backward areas and the North Eastern Region including International Co-operation for industrial partnerships.
7. Promotion of productivity quality and technical cooperation.

4) Explain the licencing and registration procedure of a business unit.

Answer : A business enterprise has to follow legal provisions before starting the operations. At present licensing is required only for six industries i.e. alcohol, cigarettes, industrial explosives, defence, drugs and pharma and hazardous chemicals. The various legal provisions relating to licensing and registration of companies include the following.

1) Registration under the Indian Companies Act. 1956 :
A Joint Stock Company needs to register under Indian Companies Act, 1956. The promoter must obtain the incorporation certificate from the Registrar of companies. To obtain the incorporation certificate, a number of documents must be prepared and submitted to Registrar of companies these are memorandum of Association, Articles of Association, List of Directors, written consent of Directors, statutory declaration and other relevant documents.

2) Registration under Indian Partnership Act, 1932 :
A partnership firm may have to register under Indian Partnership Act, 1932. The partnership deed along with other relevant documents must be filed with the Registrar of firms. In Maharashtra, a copy containing Marathi translation of partnership deed must be filed. On registration, the partnership firm gets legal status.

3) Registration of Micro and Small Enterprises :
Manufacturing units with investment in plant and machinery upto Rs. 25 lakh is known as micro enterprises. Manufacturing units with investment in plant and machinery upto Rs. 5 crore come under small enterprises. Both types of units must be registered with District industries centre (DIC). Such registration is required to avail of benefits or assistance meant for MSEs.

4) Obtaining Food and Drugs Administration Licence :
Promoters of business units dealing in hotels, food and drugs need to obtain FDA Licence, before starting operations. Separate FDA Licence are required for wholesale trade and retail trade in food and drugs items. To obtain FDA licence, application must be made to local FDA authorities, supported by relevant documents together with licence fees.

5) Clearance from Pollution Control Board :
If a business unit is engaged in manufacturing process which may pollute the environment, then in such a case, clearance is required from state Pollution Control Board. The promotes have to make an application supported by relevant documents to obtain clearance from pollution control board.

6) Registration with Directorate General of Foreign Trade (DGFT) :
Business firm intending to deal in foreign must register with Directorate General of Foreign Trade (DGFT) and obtain Importer-Exporters code number. For this purpose, application must be made to the local DGFT office, along with relevant documents.

5) Write short note :

A) Filling returns and other documents.

1) Permanent Account Number (PAN) :
After incorporation, the company must obtain its Permanent Account Number (PAN). For this purpose, an application needs to be filed with the Income Tax Department in Form 49A with the necessary documents. PAN is mandatory for opening of Bank Account, filling of Income Tax returns and various other financial transactions.

2) Tax Deduction Account Number (TAN) :
After incorporation, the company must also obtain a Tax Deduction Account Number (TAN). For this purpose, an application needs to be filed with the Income Tax Department in Form 49B with necessary documents. TAN is required for depositing of TDS/TCS.

3) Value Added Tax (VAT) :
Value Added Tax (VAT) registration is required for a trading business. This is to be applied for the local Sales Tax Department in the prescribed forms along with specified fees and necessary documents. On completion of the formalities, a Tax Identification Number (TIN) is granted.

4) Professional Tax :
Professional tax is a tax on profession. It is applicable in same states in India and the rate of tax also varies from state to state.

5) Service Tax :
Service tax is applicable on an entity which is engaged in providing prescribed services. There are more than 100 services on which services tax is currently applicable. The rate of service tax presently is 10%.

6) Filling Annual Return :
The Secretary must file annual return with Registrar of companies within 60 days of Annual General Meeting.

7) Filling of Forms :
The Secretary has to file certain forms with the Registrar of companies. For example the Secretary has to file Form 29 and Form 32.

8) Filling of Annual Accounts :
The Secretary must file annual accounts with Registrar of companies. Section 220 of the companies Act, requires every company to file with Registrar of companies, 3 copies of balance sheet and Profit & Loss A/c of the company, along with 3 copies of relevant documents annexed thereto. The annual accounts must be filed within 30 days of the Annual General Meeting.

9) Filling of Corporate Tax Returns :
Companies i.e. domestic or foreign companies operating in India have to file corporate tax return within a certain period of time. The corporate tax is payable on the domestic or foreign companies any income which is income received in India, income arises in India and income arises outside India.

b) Licencing and Registration

Answer: A business enterprise has to follow legal provisions before starting the operations. At present licensing is required only for six industries i.e. alcohol, cigarettes, industrial explosives, defence, drugs and pharma and hazardous chemicals. The various legal provisions relating to licensing and registration of companies include the following.

1) Registration under the Bombay Shops and Establishment Act, 1948 :
The promoter of every establishment shall send to the inspector of the local area concerned, a statement in prescribed form together with prescribed fees, containing name of the promoter and the manager, postal address, name of the establishment, category, fee etc. The registration certificate is then issued to the establishment, which shall be prominently displayed at the establishment.

2) VAT and Excise Registration :
The business firm subject to VAT/CENVAT must register under Bombay Sales Tax, Act. and Central Sales Tax, Act,. Those firms not subject to VAT such as textile dealer need to not obtain BST and CST Registration. The business unit may also require excise registration. For this purpose, registration may be done with the excise authorities.

3) Registration under Indian Partnership Act, 1932 :
A partnership firm may have to register under Indian Partnership Act, 1932. The partnership deed along with other relevant documents must be filed with the Registrar of firms. In Maharashtra, a copy containing Marathi translation of partnership deed must be filed. On registration, the partnership firm gets legal status.

4) Registration of Micro and Small Enterprises :
Manufacturing units with investment in plant and machinery upto Rs. 25 lakh is known as micro enterprises. Manufacturing units with investment in plant and machinery upto Rs. 5 crore come under small enterprises. Both types of units must be registered with District industries centre (DIC). Such registration is required to avail of benefits or assistance meant for MSEs.

c) Role of government in Business promotion.

Answer: The department of industrial policy & promotion was established in 1995. It has been reconstituted in the year 2000 with the merger of the Department of Industrial Development. Earlier Separate Ministries for Small Scale Industries and Agro and Rural Industries. Heavy Industries and Public Enterprises were created in October, 1999. The role and functions of the Department of Industrial Policy and Promotion primarily include as follows :

1. Formulation and implementation of industrial policy and strategies for industrial development in conformity with the development needs and national objectives.
2. Monitoring the industrial growth, in general and performance of industries specifically assigned to it, in particular, including advice on all industrial and technical matters.
3. Formulation of Foreign Direct Investment (FDI) policy and promotion, approval and facilitation of FDI.
4. Encouragement to foreign technology collaborations at enterprise level and formulating policy parameters for the same.
5. Formulation of policies relating to intellectual property rights in the field of patents Trademarks, Industrial Designs and Geographical Indications of Goods and administration of regulations, rules made there under.
6. Promoting industrial development of industrially backward areas and the North Eastern Region including International Co-operation for industrial partnerships.
7. Promotion of productivity quality and technical cooperation.

d) Business location

Answer: Business firms need to select the best suitable location for setting up a business unit. Some of the important factors that affect location include the following.

1) Safety Requirement :
Certain factories may affect the health of the public in neighboring areas where the plant is located. Therefore, such industries must be located in remote areas away from residential areas. For example, explosive factors must be located away from residential areas.

2) Financial Facilities :
Finance is the basic need of each and every industries. Industries require huge capital. It gets attracted to those regions where income of the people is high and they are willing to invest for industrial activities.

3) Financial Facilities :
Finance is the basic need of each and every industries. Industries require huge capital. It gets attracted to those regions where income of the people is high and they are willing to invest for industrial activities.

4) Natural Factors :
Natural factors affect the location of those industries which require a particular climate or weather conditions. For example, climate is an important factor in tea, coffee, rubber plantation.

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