Explore topic-wise InterviewSolutions in .

Prof. L.H. Haney defines “A joint stock company is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership.”

A partnership is an association of two or more persons to carry on, as co-owners, a business and to share its profits and losses.

Operation plan is a system whereby there is achieved a smooth and coordinated flow of work within the factory so that, by planning and control of all the productive operations in all the stages of manufacture, the final product is completed in accordance with the plans.

“Sole proprietorship is a business unit whose ownership and management are vested in one person. The individual assumes all risks of loss or failure of the enterprise and receives all profits from its successful operations.”— Edward Elbourne.

Following are the inherent limitations of Sole Proprietorship: 

(i) Limited Capital 

(ii) Limited Managerial Ability 

(iii) Limited Continuity 

In this era of specialization, expansion and diversification, expecting one man to combat them all is not possible. Business acumen and wealth seldom meet in one person. This, desirable combination probably led to emergence of Partnership form of business.

Following are the features of Partnership: 

(i) Association: It is an association of two or more persons. 

(ii) Co-owners: Members are co-owners. 

(iii) Sharing: Partners share profits and losses related to business. 

(iv) Agreement: A written or oral agreement is made by the owners. 

(a) Members: The minimum number remains at 2 members, the maximum number of members is restricted to 10 in case of banking and 20 in case of other business.

Financial plan is a projection of key financial data about:

(i) The potential investment commitment needed for the new venture, and

(ii) Economic feasibility of the enterprise.

Under Section 3 (i) (ii) of the Companies Act, a public company is a company which is not a private company. By implication, 

A public company is one which: 

(i)Has minimum seven people to commence it with no upper limit to membership. 

(ii)Does not restrict any transfer of shares. 

(iii)Invite public to subscribe for its shares, debentures and public deposits. 

(iv)Has a minimum paid up capital of five lakh rupees. 

(v)Uses the word ‘Ltd.’ at the end of its name.

Partnership form of a business is an ideal choice for starting a new venture, if the entrepreneur’s. 

(i)Requirement: Capital and Managerial requirements are higher as compared to that of sole proprietorship. 

(ii) Size of enterprise: Enterprise falls in the category of either being a small or a medium scale enterprise. 

(iii) Contact: Direct contact with the customers is essential.

In making a choice, entrepreneur will want to take into account following points while selecting the form of ownership : 

(i) Vision: Vision regarding the size and nature of business. 

(ii) Control: The level of control the entrepreneur wishes to have. 

(iii) Structure: The level of “structure” entrepreneur is willing to deal with. 

(iv) Vulnerability: The business’s vulnerability to lawsuits. 

(a) Tax concern: Tax implications of the different organizational structures. 

(vi) Profit/Loss: Expected profit (or loss) of the business.

A private company is one which: 

(i) Has a minimum of 2 and a maximum of 200 members excluding its past and present employees. 

(ii) Restricts the right of its members to transfer shares. 

(iii) Prohibits an invitation to the public to subscribe for any shares in or debentures of the company, or accept any deposits from persons other than its directors, members or relatives.

(iv) Has a minimum paid up capital of one lakh rupees (subject to change).

(v) Uses the word ‘Pvt. Ltd.’ at the end of its name.

Each type of business differs significantly in terms of:

(i) Commencement procedures

(ii) Legal constraints

(iii) Financial requirement

(iv) Accounting methods

(v) Marketing and promotional strategies

(vi) Risk and liability.

Any kind of business will fall into one of the four basic categories: 

(i) Manufacturing  It makes a tangible product. 

(ii) Wholesale  It buys products in bulk from the manufacturers to be sold in smaller lot to retailers. 

(iii) Retail  It sells the product directly to the final consumer for final satisfaction. 

(iv) Service  It sells intangible such as time or expertise.

Manpower Planning is a process by which an entrepreneur ensures that he/ she has the right number of people, and right kind of people, at the right place and the right time to do work for which they are economically most suitable. Manpower planning is necessary for every business unit because it helps to assesses: 

(i) What kind of people are required? 

(ii) How many people are required? 

(iii) How will they be selected?

From the entrepreneur’s point of view the most commonly opted out forms for starting a new venture are: 

(i) Sole Proprietorship 

(ii) Partnership 

(iii) Company.

Reasonable profit with conservative estimates lends credibility to the potential success of the new venture.

It focuses on some history of the market place, marketing strengths and weaknesses of the new venture and market opportunities and threats.

Sales tax is levied on the sale of the commodity which is sold for the first time. Excise duty is a tax on manufacture/ production or import of goods.

(i) Planning, is thinking in advance what is to be done when it is to be done, how it is to be done and by whom it should be done. 

(ii)It’s an intellectual thinking process that never ends. 

(iii)It is the organized foresight and the vision based on facts and experience. 

(iv)It bridges the gap between where we are standing and where we want to reach.

All those persons who are required to deduct tax at source or collect tax at source on behalf of Income Tax Department are required to apply for and obtain TAN.

Sales Tax is different from the Excise duty as excise is a tax on the act of sale while the sales is a tax on the act of manufacture or production of goods.

Production is transformation of raw material into finished product with the help of energy, capital, manpower and machinery.

The Indian Co-operative Societies Act, 1912 defines co-operative in Section 4 as, “Society which has its objectives of the promotion of economic interests of its members in accordance with co-operative principle.”

Those enterprises which are owned, controlled, and managed by private individuals.

These enterprises can be:

(i)Sole-proprietorship

(ii)Partnership 

(iii)Joint Hindu Family Business 

(iv)Co-operative 

(iv) Company

(i) Setting-up a business is not an easy task. 

(ii) An enterprise is a separate and distinct unit, institutionally arranged to conduct any type of business activity. 

(iii) It needs to combine the necessary beings, materials, tools, equipments, working space and appurtenances, brought together in a systematic and effective manner to accomplish the entrepreneur’s desired objective. Thus, every business entity needs to select an appropriate legal structure or framework to work in which determines the extent of ownership and responsibility of proprietor(s).

Activity can be classified as: 

(i) Economic activities: Those activities which are undertaken to earn monetary gains are called economic. It includes Production, Distribution and Consumption of goods and services. 

(ii)Non-economic activities: Those activities which are done out of love, care, affection, selfsatisfaction, emotions, sympathy, patriotism, etc. but not for money are known as non¬economic activities.

Financial plan deals with the deciding in advance about the future spending. 

The formulation of plan is affected by following factors: 

(i) Clarity of Objectives: A good financial plan has clearly defined objectives. The objectives are expressed in terms of money or quality of products, objects. Objectives are presented in simple words. 

(ii) Simple: A good financial plan is simple to understand and implement. It is made simple by considering various factors related with the enterprise. 

(iii) Flexibility: A good financial plan has a scope for making changes in the future. The plan is made flexible considering future obligations and future plans of the enterprise. 

(iv)Risk: A good financial plan keeps sufficient scope for the calculated risk rather to say it is made by keeping the level of risk of the enterprise.

No, this approach of the entrepreneur is incorrect. 

This is because:

(i) In such situation he will not be utilising the resources fully and this will mean more likely wastage of the resources.

(ii) Entrepreneur will be not fulfilling his responsibility of doing social service.

(iii) He will not be doing social justice as he will be exploiting the people for his selfish motive.

(iv)He is also not following self control. Self control is a essential trait for the long term success of the enterprise.

Financial planning has a pivotal role in financial management. 

The importance of it can be explained under following headings: 

(i) Securities: For obtaining finance what securities are to be offered it is clearly mentioned in the financial plan. Further which securities to be kept for obtaining working capital or short term loan and which are to be kept for long term finance, this is clearly classified and mentioned. Plan includes the clear policy for rotation of securities for maintaining continuous supply of finance. 

(ii) Fulfils requirement: Financial plan fulfils the financial requirement of the enterprise. It specifies the strategy and sources for obtaining finance. The requirement of funds for research, raw materials, payment of wages, are mentioned period wise. This provides target for the financial management. 

(iii) Risk: A financial plan clearly mentions the extent of risk that can be undertaken by an enterprise. This provides the limits of working in the financial management.

The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 applies to the whole India except Jammu & Kashmir. Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 is applicable to: Every establishment which is engaged in any one or more of the industries specified in Schedule I of the Act or any activity notified by Central Government in the Official Gazette. Employing 20 or more persons.

(i) TAN or Tax Deduction and Collection Account Number is a 10 digit alpha numeric number required to be obtained by all persons who are responsible for deducting or collecting tax.

(ii) It is compulsory to quote TAN in TDS/ TCS return (including any e-TDS/TCS return), any TDS/TCS payment challan and TDS/TCS certificates.

(iii) All persons who are required to deduct tax at source or collect tax at source on behalf of Income Tax Department are required to apply for and obtain TAN.

Following persons/professionals are consulted by the entrepreneur while preparing a business plan:

(i)Lawyers,

(ii)Accountants,

(iii)Marketing consultants,

(iv)Engineers,

(v)Internet sites,

(vi)Officially appointed or/and set up banks, specialized financial institutions or agencies to promote entrepreneurship,

(vii)Friends, relatives, mentors, etc.

The entrepreneur has access to following forms to choose as venture: 

(i) Sole proprietorship 

(ii) Partnership 

(iii) Joint Hindu Family 

(iv) Cooperative 

(v) Corporation

A business plan gives idea/clarity to the entrepreneur, investor(s) and the government of: 

(i)What an entrepreneur is doing? 

(ii)Why he/she is doing it? and 

(iii)How he/she will do that?

In this the customer varies across the geographical location. E.g.: Action shoe manufacturing company wants to identify its target group, i.e. customers. It specializes in sandals meant for women only, thus, excluding men. from its target group. The shoes manufactured are expensive meant for women belonging to higher income groups and living in urban/city areas. In this case, the target group can be identified on the basis of three homogeneous characteristics of the customers: 

(i) women; 

(ii) belonging to higher income groups; and 

(iii) living in cities and urban areas 

Age: Child-youth-adult-old Sex: Male-Female Income: 

High-Middle-Low-Below Poverty Line 

Education: Primary-Secondary—Tertiary Occupation: Farmers-Govt. Employees- Professional- Executives

(i) Import of goods means bringing into India of goods from a place outside India. India includes the territorial waters of India which extend up to 12 nautical miles into the sea to the coast of India.

(ii) Export of goods means taking goods out of India to a place outside India.

(i)Joint Stock Company. 

(ii) It is an association of persons who contribute money in the shape of shares and the company gets a legal entity and enjoys a permanent existence. 

(iii) It has the following features voluntary association; artificial person; separate legal entity; common seal; limited liability; transfer ability of shares; diffusion of ownership and management; number of members; limitation of action; winding up.

Entrepreneur should add unique selling point in the existing plan to get a creative niche above others. 

This is because of following reasons: 

(i) This will indicate that the entrepreneur is creative and so want to solve the problem with creativity. 

(ii) It also will mean that the entrepreneur has the ability to concentrate on the problem and have a suitable solution. 

(iii) Here the entrepreneur will be a problem solver and is not afraid of competition. 

(iv) It also reflects that the entrepreneur has got the quality of endurance which is an essential trait for a successful entrepreneur.

Raghav should prevent as well respond to risk. 

This is because of following reasons: 

(i) Initiative: This will reflect that he is ready to take initiative which is an essential trait for a successful entrepreneur. 

(ii) Creative: This will indicate that the entrepreneur is creative which will mean that the entrepreneur will have more chances of being successful in future. 

(iii) Discipline: Prevention and responding will require the entrepreneur to be disciplined. This will inculcate the disciplined environment in the enterprise. 

(iv) Compassion: Passion is what required by an entrepreneur for the growth and development of the enterprise.

Business may be defined as “an activity in which different persons exchange something of value whether goods and services for mutual gain or profit.” — Peterson and Plowman

Employment is an activity in which an individual works regularly for others and get remuneration/compensation in return, undertaking personal services as per the agreement of employment.

According to Webster’s Dictionary. “Profession is that occupation in which one professes to have acquired specialized knowledge, which is used either in instructing, guiding or advising others,”.

Various formalities for starting a business in India include the following : 

(i) Obtain PAN Number from Income Tax Department: 

(a) Permanent Account Number (PAN) a ten-digit alphanumeric number, issued by the Income Tax Department enables the department to link all transactions of the person with the department. 

(b) These transactions include tax payments, TDS/TCS credits, returns of income/wealth/gift/FBT, specified transactions, etc. 

(c) It is mandatory to quote PAN in all documents related to financial transactions like sale or purchase of any immovable property valued at five lakh rupees or more, sale or purchase of a motor vehicle or vehicle, a time deposit, exceeding fifty thousand rupees, with a banking company, a deposit, exceeding fifty thousand rupees, in any account with Post Office Savings Bank, a contract of a value exceeding one lakh rupees for sale or purchase of securities, etc. 

(ii) Open a Current Account in any Commercial Bank: 

(a) Any person(s) competent to contract and satisfactorily introduced to the Bank may open an account in his/her own name. 

(b) Accounts can be opened for sole proprietorship firms, partnership firms, private limited and public limited companies, Joint Hindu families, trusts, clubs, associates, etc. 

(c) Accounts can be opened by minors of 14 years and above, if able to read and write, (a) Various documents related to firm are also to be provided. 

(iii) Register a Limited Liability Partnership (LLP): Limited Liability Partnership (LLP) 

(a) The Limited Liability Partnership (LLP) is an alternative corporate business vehicle which provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. 

(b) The LLP form enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements. 

(c) It is governed by the provisions of the Limited Liability Partnership Act, 2008. 

(d) TO register an Indian LLP, firstly apply for a Designated Partner Identification Number (DPIN), which can be done by filing e-Form. 

(e) Acquire the Digital Signature Certificate (DSC) and register the same on the portal. This is the only secure and authentic way that a document can be submitted electronically. 

(f) All filings done by the LLP(s) are required to be filed with the use of Digital Signatures by the person authorised to sign the documents. 

(g) Thereafter, entrepreneur need to get the LLP name approved by the Ministry. 

(h) Once the LLP name is approved, entrepreneur can register the LLP by filing the incorporation form. 

(iv) Register Company (Pvt. Ltd/ Public Limited Company): The following steps are involved in incorporating a private or public company in India: 

(a) Name of the Business Entity 

(b) Register for e-filing at MCA (Ministry of Corporate Affairs) portal 

(c) Apply for Director Identification Number (DIN) 

(d) Obtain Digital Signature Certificate (DSC) (e) Register DSC at MCA website 

(f) Apply for approval of the name of the company (g) F ormulate Memorandum of Association 

(h) Formulate Articles of Association 

(i) Verify, Stamp & Sign Articles of Association 

(j) Verify the various forms required for incorporation of company

(v) Register for Service Tax: 

(a) Service tax, an indirect tax, which normally the service provider pays the tax and recovers the amount from the recipient of taxable service. 

(b) Normally, the person who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government. 

(c) In the following situations, the receiver of the services is responsible for the payment of Service tax: 

•Where taxable services are provided by Foreign Service providers with no establishment in India, the recipient of such services in India is liable to pay Service Tax. 

•For the services in relation to Insurance Auxiliary Service by an Insurance Agent, the Service Tax is to be paid by the Insurance Company. 

•For the taxable services provided by a Goods Transport Agency for transport of goods by road, the person who pays or is liable to pay freight is liable to pay Service Tax, if the consignor or consignee falls under any of the seven categories viz. a factory, a company, a corporation, a society, a co-operative society, a registered dealer of excisable goods, a body corporate or a partnership firm. 

•For the taxable services provided by Mutual Fund Distributors in relation to distribution of Mutual Fund the Service Tax is to be paid by the Mutual Fund or the Asset Management Company receiving such service.

(vi) Register for VAT/Sales Tax: 

(a) VAT is a tax on the final consumption of goods or services and is ultimately borne by the consumer. 

(b) The State Governments, through Taxation Departments, are carrying out the responsibility of levying and collecting VAT in the respective States. 

(c) The Central Government is playing the role of a facilitator for the successful implementation of VAT. 

(d) The entire design of VAT with input tax credit is crucially based on documentation of tax invoice, cash memo or bill. 

(e) Every registered dealer, having turnover of sales above an amount specified, needs to issue to the purchaser serially numbered tax invoice with the prescribed particulars. 

(f) This tax invoice is to be signed and dated by the dealer or his regular employee, showing the required particulars. 

(g) For identification/registration of dealers under VAT, the Tax Payer’s Identification Number (TIN) is used. Sales Tax: Sales tax is levied on the sale of a commodity, which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax. It is levied under the authority of both Central Legislation (Central Sales Tax) and State Governments Legislations (Sales Tax). Some states also levy additional tax, surcharge, turnover tax, etc. Sales tax is recovered from the buyer as a part of consideration for sale of goods. Under state Sales Tax ID number entrepreneur(s) collect and pay tax for any service or product sold, which, qualifies for taxation in the state.

(vii) Excise Duty (If Applicable): Excise duty is a tax on manufacture or production of goods. “State Excise” duty and “Central Excise” duty are the two type of excise duty which are to be paid to state government and central government respectively. Subject to specified conditions, generally the following categories of persons are required to get themselves registered with the Central Excise department. Subject to specified conditions, the various categories of persons need not obtain Central Excise registration. Apply to the nearest Central Excise Division Office in Form A.l along with a self-attested copy of the PAN issued by the Income Tax Department. After post verification, a regular Registration certificate in form RC is normally issued immediately. 

(viii) Shop and Establishment Act: Shop and Establishment Act is to provide statutory obligation and rights to employees and employers in the unorganised sector of employment, i.e., shops and establishments. Shops and Establishment Act is a State Act and therefore State specific Shops and Establishment Rules should be followed for getting knowledge on registration and maintenance of different registers. 

(ix) Customs Duty: Customs Duty is levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. 

(x) File Entrepreneurship Memo-randum at DIC (Optional): Entrepreneur may File Part I of Entrepreneurs Memorandum to the District Industries Centre. This may be necessary for claiming certain incentives/subsidies and for certain formalities at the state level. (xi) Apply for TAN: All persons who are required to deduct tax at source or collect tax at source on behalf of Income Tax Department are required to apply for and obtain TAN.

(xii) Permissions required at the Construction Stage: Following permissions are required to be obtained from the government: 

(a) Application for plot/shed, offer letter etc, Allotment of plot/shed, payment of balance occupancy price, taking over possession thereof, Application for issuance of NOC/ SSI registration, Execution of Lease Agreement, Application for grant of connection for construction water, Application for grant of connection for construction power. 

(b) Post Construction Clearances: It includes: Building completion/ drainage completion/tree plantation certificate, Permission for mortgage, NOC from Pollution Control Board, Final Fire clearance, NOC from Environment department, Industrial safety permit, Sanction of permanent power, Sanction of permanent water and sewerage connection. 

(xiii) Employee’s Provident Fund:Applicable for establishments employing 20 or more persons and engaged in industry. 

(xiv) Employee’s State Insurance (ESI) Scheme: The Act is applicable to non-seasonal factories employing 10 or more persons and is extended to shops, hotels, restaurants, cinemas including preview theatres, road- motor transport undertakings and newspaper establishments employing 20 or more persons.

Following are the key areas to work a sound financial plan:

(i) Financial requirements

(ii) Sources of raising funds

(iii) Exact assessment of the revenue, cost, profits, cash flow dynamics, stock of inventory loans, etc.