Unit-5 - Msme Formalities-2022

1.
FORMALITIES FOR SETTING UP A SMALL BUSINESS ENTERPRISE
A strong entrepreneur is the most vital aspect of every

successful project. In order to set up an enterprise or set up a
small-scale industry, a suitable project has to be decided upon.
This involves selecting a product or service, and a location for
the unit. Based on these selections, a project feasibility study has
to be conducted and then a brief profile has to be prepared for
the proposed project. Then an entrepreneur has to prepare a
business plan. The formalities are given in the below SSI unit
Formalities for Setting up Small Business Enterprises:
The main steps involved in setting up a Micro, Small & Medium
Enterprise are as below:-
(a) Project Selection (e) Filing of Entrepreneurs’ Memorandum
(b) Technology and Machinery (f) Approvals
(c) Arranging Finance (g) Clearances
(d) Unit Development (h) Quality Certification
(a) Project Selection:
The first step in setting up an MSME is project selection. Idea

The first in project selection the one has to think about the idea.
For the idea we have to consider the following points:
- Does the idea fire up your motivation?
- Is it a viable business proposition in your area?
- Does it match the needs of your clientele?
- Check it out with basic market research
- Test it out at market place
- Consult with the experts
- Look out for competition in the field
- Is it a sunrise industry?
- Your business opportunity
- Project conceptualization
Once the ideas are screened and a viable business opportunity
emerges the project has to be conceptualized in all its
dimensions. The 4 Ps of Project Conception is:
- PRODUCT (Shape, Size and Nature)
- PROCESS (Technology to produce the product)
- PLACE (Location of Plant)
- PARTNER (Technological of Financial Collaborator)
Making a Product Choice
In a project conceptualization stage while making a product
choice following factors are related to product need to be
considered:
- Product Line - Depth, Width, - Packaging, - Branding,
- Warranties, - After Sales Service Once the product is finalized,
choices of process technology emerge.
(b) Technology & Machinery
Choices of process technology emerge once the product is
finalized. For some complex products, process know how has to
be imported.
The choice of Technology & Machinery the following points
should be consider:
-Whether process requires very high level of skilled workers or
complex machines?
- Whether process requires large quantities of water and/or
power?
- Whether any process or product patent needs to be honored
while utilizing the selected process technology.
- Any special pollution or environmental regulations.
- Finally, the appropriateness to the Indian environment and
conditions. Machinery and equipment
(c) Arranging Finance:
No MSME unit can take off without monetary support. This
need for finance can be classified into following types:
- Long and medium term loans
- Short term or working capital requirements
- Risk Capital,- Seed Capital/Marginal Money,- Bridge loans
Financial assistance in India for MSME units is available from a
variety of institutions. The important ones are:
(i) Commercial/Regional Rural/Co-operative Banks.
(ii) SIDBI: Small Industries Development Bank of India
(refinance and direct lending)
(iii) SFCs/SIDCs: State Financial Corporations (e.g. Delhi
Financial Corporation)/State Industrial Development
Corporations.
Long and medium term loans are provided by SFCs, SIDBI and
SIDCs.
(d) Unit Development
After deciding the issues of product and process, the next
important question is where to set the unit up?
For many tiny units and service-based units, the home is perhaps
the best starting point.
Setting up an establishment is much more than putting a
signboard up and waiting for customers to walk in. It requires
negotiating a favourable plot or shed purchase, organising for
proper construction of building, design of interiors and finding
good deals for equipment and machinery.
(e) Filing of Entrepreneurs’ Memorandum
Section 8 of the Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006 provides for filing of
memorandum by a Micro, Small or Medium Enterprise. Sub-
section (2) of section 8 stipulates that the form of the
Memorandum, the procedure of its filing and other matters
incidental thereto shall be such as notified by the Central
Government.
• The memorandum may be filed by all three categories of
enterprises with the District Industries Centre in the jurisdiction
of which the enterprise is (or, is proposed to be) located,
• The procedure for filing it has been outlined in Schedule. II
of the Notification for the format of EM
(f) Approvals : Every MSME unit has to comply with various
regulations in force. These include regulatory, taxation,
environmental and certain product specific clearances. This
section looks into the methodology of obtaining these approvals
and clearances.
Exemption from Compulsory License
Licensing in the Industries sector is governed by the licensing
exemption notification issued by Govt. of India in July 25 1991
under the Industries (Development and Regulation) Act, 1951.
In SSI, there are virtually no licensing restrictions. No industrial
license is required except in case of 6 product groups included in
compulsory licensing (these products groups mainly cover
products that can only be made in large sector.)
(g) Clearances
An entrepreneur has to obtain several clearances or permissions
depending upon the nature of his unit and products
manufactured. The various clearances required are:
Product Specific Clearances
1. Establishing a Printing Press - District Magistrate
2. License for Cold Storage Construction - Designated Official
in State
3. Pesticides - Central/State Agricultural Department - Ministry
of Agriculture
4. Drugs and Pharmaceuticals - Drug license from State Drug
Controller
5. Safety Matches/ Fireworks - License under Explosives Act
from Directorate of Explosives, Nagpur
6. Household Electrical Appliances - License from Bureau of
Indian Standards
7. Wood Working Industry within 8 km from forest - District
Forest Officer
Environment & Pollution Related Clearances
The method of granting consent under water and air pollution to
SSI units has been simplified. Except for 17 critically polluting
sectors given below, in all other cases SSI units will merely have
to file an application and obtain an acknowledgement which will
serve the purpose of consent:-
1. Fertilizer (Nitrogen/Phosphate) 2. Sugar 3. Cement
4. Fermentation & Distillery 5. Aluminium
6. Petrochemicals 7. Thermal Power 8. Oil refinery
9. Sulphuric Acid 10. Tanneries 11. Copper smelter
12. Zinc smelter 13.Iron & Steel
14.Pulp & Paper
15. Dye and Dye intermediates
16. Pesticides manufacturing and formulation
17. Basic Drugs and Pharmaceuticals
(h) Quality Certification
Quality certification has become extremely important in

competitive markets and especially in gaining foothold in
exports. To avail the certification of ISO-9000, a unit has to
undertake significant costs; the small scale industries have been
found wanting mainly on account of resource crunch to
implement quality systems to obtain this certification. However,
as a paradigm shift, SSI must make 'Quality' a way of life.
DISCLAIMER:
This study material is compiled by Dr. Manisha Bhatt. The basic
objective of this material is to provide extra reading and learning to the
students so as to enable to obtain clear concept of the subject.
Students should also supplement their study by reference to the books
recommended by B V M Engineering College-AN AUTONOMUS
INSTITUTION

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1.

FORMALITIES FOR SETTING UP A SMALL BUSINESS ENTERPRISE

A strong entrepreneur is the most vital aspect of every

(a) Project Selection:

The first step in setting up an MSME is project selection. Idea

(h) Quality Certification

Quality certification has become extremely important in

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