Business Ownership and Entrepreneurship in India

Posted on Mar 4, 2025 in Economy

Ownership Structure

Ownership structure refers to the framework that defines how a business is owned and managed.

Major Types of Ownership Structures:

a) Sole Proprietorship

• Owned and managed by a single person.
• The owner has full control over decision-making.
• Profits and losses are entirely borne by the proprietor.
• Unlimited liability: Personal assets can be used to cover business debts.
• Examples: Small shops, individual service providers (doctors, consultants).

b) Partnership

• Owned by two or more people who share profits and liabilities.
• Governed by a partnership agreement.
• Types:
  • General Partnership: All partners have unlimited liability.
  • Limited Partnership: Some partners have limited liability based on their investment.
• Advantages: Shared responsibilities, better capital resources.
• Disadvantages: Conflicts among partners, shared liabilities.

c) Joint Stock Company

• A separate legal entity with shareholders.
• Managed by a board of directors.
• Types:
  • Private Limited Company (Ltd): Shares not freely transferable.
  • Public Limited Company (PLC): Shares freely traded on the stock exchange.
• Limited liability: Shareholders’ risk is limited to their investment.
• Requires registration under company law.

d) Cooperative Society

• Owned and controlled by a group of individuals with a common economic interest.
• Members share profits and benefits.
• Examples: Agricultural cooperatives, consumer cooperatives.

e) Public Sector Enterprises

• Owned and controlled by the government.
• Examples: Indian Railways, State Bank of India (SBI).

Small and Medium Scale Industries (SMEs)

SMEs play a crucial role in economic development by promoting entrepreneurship and employment.

a) Small Scale Enterprises (SSEs)

• Investment in plant and machinery does not exceed ₹1 crore.
• Encouraged by the government to boost employment and economic decentralization.
• Examples: Handicrafts, small textile units.

b) Medium Scale Enterprises

• Investment in plant and machinery between ₹5 crores and ₹10 crores.
• Act as a bridge between small-scale and large-scale industries.
• Examples: Furniture manufacturing, chemical industries.

c) Role of SMEs in Economic Development

• Provide employment at a low capital cost.
• Promote regional development by dispersing industries.
• Encourage indigenous entrepreneurship.
• Contribute significantly to exports.

d) Challenges Faced by SMEs

• Limited access to credit.
• Lack of advanced technology.
• Difficulty in marketing products.
• Competition from large industries and imported goods.

Maslow’s Need Hierarchy Theory

Developed by Abraham Maslow, this theory explains human motivation in a hierarchical structure.

a) Five Levels of Needs

1. Physiological Needs: Basic survival needs like food, water, shelter.
2. Safety Needs: Security, financial stability, health, protection.
3. Love and Belongingness: Social relationships, friendships, family connections.
4. Esteem Needs: Respect, recognition, self-esteem.
5. Self-Actualization Needs: Fulfilling personal potential, creativity, problem-solving.

b) Key Principles

• Needs must be fulfilled sequentially.
• Once a lower-level need is satisfied, the next level becomes a priority.
• Self-actualization is the ultimate goal of motivation.

c) Relevance in Entrepreneurship

• Entrepreneurs must recognize customer needs at different levels.
• Employees in a business are motivated by these needs.
• Understanding these needs helps in designing better work environments.

Entrepreneurship in India

Entrepreneurship in India has evolved through different phases:

a) Pre-Colonial and Colonial Period

• India had a flourishing handicraft industry.
• Declined due to British policies, competition from machine-made goods, and lack of support.

b) Post-Independence Era

• Government emphasized industrialization.
• Policies aimed at balancing public and private sector participation.
• Growth of family-based businesses (Tata, Birla, Kirloskar).

c) Post-Liberalization (1991 Onwards)

• Economic liberalization opened opportunities for private entrepreneurs.
• Reduced government regulations encouraged new businesses.
• Growth of technology and service industries.

d) Government Support for Entrepreneurs

• Initiatives like Make in India, Startup India, Stand-Up India.
• Financial support through SIDBI, MUDRA loans.
• Business incubators and accelerators in universities and tech parks.

Structure of Cooperative Society

A cooperative society is an association of people who come together voluntarily to meet their economic, social, and cultural needs.

a) Features

• Voluntary membership.
• Democratic control: One member, one vote.
• Service motive rather than profit motive.
• Profit distribution among members.

b) Types of Cooperative Societies

• Consumer Cooperative Societies – Provide goods at fair prices.
• Producer Cooperative Societies – Help producers sell their goods collectively.
• Credit Cooperative Societies – Provide loans at low interest rates.
• Agricultural Cooperative Societies – Support farmers in selling their produce.
• Housing Cooperative Societies – Help in acquiring affordable housing.

c) Importance in Economic Development

• Protects small businesses from exploitation.
• Provides credit at reasonable rates.
• Encourages self-reliance among members.

Sources of Finance

Businesses require capital from various sources, which can be classified based on time period, ownership, and source of generation.

a) Based on Time Period

Short-Term Sources (Less than 1 year)

• Trade credit
• Bank overdraft
• Short-term loans

Medium-Term Sources (3-5 years)

• Term loans from banks
• Leasing
• Hire purchase

Long-Term Sources (More than 5 years)

• Equity shares
• Debentures
• Retained earnings

b) Based on Ownership

Owned Capital

• Equity capital
• Retained earnings (profits reinvested)

Borrowed Capital

• Bank loans
• Debentures
• Public deposits

c) Based on Source of Generation

Internal Sources

• Retained earnings
• Sale of assets
• Depreciation funds

External Sources

• Public share offerings
• Venture capital
• Government subsidies

How Entrepreneurship Contributes to the Economy

Entrepreneurship stimulates economic development by:

• Creating job opportunities
• Driving innovation and technological advancements
• Increasing productivity
• Improving living standards
• Encouraging regional development

Growth of Entrepreneurship in India

Pre-Independence (Before 1947)

• Traditional Handicrafts and Cottage Industries – India had a rich tradition of artisans and small-scale businesses.
• British Colonial Impact – Restricted industrial growth, reliance on agriculture.
• Emergence of Business Houses – Tata, Birla, and other Indian entrepreneurs started industrial ventures.

Post-Independence Growth

• Planned Economic Development – Five-Year Plans, establishment of PSUs.
• Liberalization in 1991 – Open market policies encouraged entrepreneurship.
• Government Schemes – Startup India, MSME growth, Atmanirbhar Bharat.
• Rise of Tech Startups – IT and digital businesses booming

Rural vs. Urban Entrepreneurship