FORMALITIES FOR SETTING UP OF A
SMALL BUSINESS ENTERPRISE/
INDUSTRIAL UNIT
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1. Selection of a Project
• An entrepreneur has to prepare a business plan.
• Depending on the type of project, location, investment involved,
and so on, the entrepreneur has to proceed to take further steps
in establishing the unit.
• Project selection and preliminary activities involve the following.
Product or service selection
Location selection
Project feasibility study
Business plan preparation
Preparation of a project profile
(a) Product or Service Selection
• The main factors are as follows.
Background and experience of the entrepreneur(s)
Availability of technology and know-how for the project
Marketability of the product/service
Investment capacity
Availability of plant and machinery
Availability of raw materials
Availability of proper infrastructure facilities (land/shed, power,
water, transport, and so on).
(b) Location Selection
– The location of the project—where to set, the unit.
▪ Proximity to market;
▪ Availability of raw materials;
▪ Availability of transportation and communication facilities;
▪ Availability of incentives/concessions;
▪ Government policy;
▪ Availability of suitable infrastructure facilities; and
▪ Convenience for the promoter.
(d) Business Plan Preparation
▪ Written documents
▪ An organized and effective response to a situation which may arise
in future.
▪ Not only for start up firm but also growing firm
▪ To establish realistic goals or targets to achieve and to determine
the current position.
▪ To help make crucial start-up decisions; to reassure lenders,
investors or backers; to measure operational progress; to test
planning assumptions; to adjust forecasts; and to set the standard
for good operational management.
(e) Project profile
• A project profile gives a bird's-eye view of the proposed
project.
• This may be used for obtaining the Provisional
Registration Certificate (PRC) from the District
Industries Centre and for making, applying for Industrial
Areas Development Board for land or State Small
Industries Development Corporation (SSIDC) for shed
and other infrastructures.
2. Decide on the Constitution
• In India setting up a private limited company is the most
popular choice among entrepreneurs.
• To start an industry, the promoter(s) have to decide on the
constitution of the unit. There are five major alternatives.
1. Sole proprietorship
2. Partnership
3. Corporation/Limited company
4. Cooperative
5. Franchising
3. Registration
Obtain SSI Registration
• Small-scale and ancillary units that is undertakings
with investment in plant and machinery of less than Rs
1 crore) should seek registration with the Director of
Industries of the concerned State government.
• Process
– Unit goes into production
– The provisional registration certificate (PRC) has to be converted into a permanent
registration certificate (PMC).
Registration Formalities
1. Prescribed court fee stamp
2. Copy of the project profile
3. Partnership deed/Memorandum and Articles of Association, as the
case may be
4. Affidavit, as per format on appropriate stamp paper
• The initial validity of the PRC is for two years
and it can be renewed subsequently, if
needed.
4. Clearances from Specific
Departments
Clearance of Specific Department
•Bureau of Indian Standards (BIS)
•Agricultural land conversion certificate
•Urban land ceiling clearance •Fruit Products Order (FPO) licence
•Building plan approval •Food Adulteration Act licence
•Factories Act •Power loom registration
•Trade licence •Electronics industries registration
•Pollution Control Board clearances •Drugs and cosmetics licence
•GST registration •Approvals of hotels
•100 per cent export-oriented unit
5. Arrange for Land/Shed
• Industrial Land
• Once the location of the unit is decided, the land for the project could be
conveniently taken from the State Industrial Areas Development Board.
• Private land could also be purchased, but it has to be converted for
industrial purpose and other necessary legal/formalities will have to be
completed.
• Industrial shed
• For setting up an SSI unit, the promoters could consider using a ready
industrial shed. This could be on rent or on ownership basis.
6. Arrange for Plant and
Machinery
• Two type of Purchase
– Direct purchase (Purchased from recognised manufacturers/dealers)
– Hire Purchase ( scheme operated by the National Small Industries
Corporation (NSIC))
7. Arrange for Infrastructure
• Land and Construction of Building
– Availability of basic amenities like power, water
– Connectivity to nearest rail, road, or port
– Price of the land
• Getting the Utility Connections
– Water Supply
– Power Supply
8. Prepare Project Report
• The project report gives a detailed insight of the project and
indicates the techno-economic viability of the project.
• GENERAL POINTS
• Expected use of the project report
• Elaborate details but retaining the confidential data
• Proper validation of the data and information based on
reliable sources
• Effective presentation by use of charts, graphs, and pictorial
forms
• Cost minimization and timeliness
• Proper estimation of the requirement of number of copies
9. Apply and Obtain Finance
Means of Finance
– Own equity
– Internal accruals
– Inter corporate deposits/investment
– State financial institutions
– Other financial institutions
– Banks
– Other borrowings like ECB, CP, FDI, FCNRB
– State subsidy and seed capital
– Lease finance
– Small-scale units can obtain finance for their projects under two main
categories.
– Term loan
– Working capital loan
Arranging Finance
– Small Industries Development Bank of India (refinance and direct
lending)
– State Financial Corporations, for example, Delhi Financial Corporation
and Gujarat State Financial Corporation
– National Small Industry Corporation
– Small Industry Development Corporations of various States
– Commercial/cooperative banks
– District Industry Centre
– In addition, large term loans are also available from all-India financial
institutions such as IDBI, IFCI, and ICICI.
– The Export Import Bank of India and Export Credit and Guarantee
Corporation are Central agencies which provide credit for
export/import and EXIM guarantees respectively.
10. Implement the Project and
Obtain Final Clearances
1. Construct Shed
• If the entrepreneurs have taken a readymade shed from the
State Small Industries Development Corporation or have
made arrangements for rental sheds/premises, then they
need not go through this step.
• But not then concerned authorities like the municipal
corporations or municipalities or village panchayats.
• Order for Machinery:
• Recruit Personnel:
• Arrange for Raw Materials:
• Marketing:
• Erection and Commissioning:
• Obtain Final Clearances:
Regulatory or Taxation Clearances
• Registration under Sales Tax Act—Commercial Tax officer of
the area concerned.
• Registration under Central Excise Act—Collector of Central
Excise or his nominee.
• Payment of Income Tax—i TO of the area concerned.
• Registration of Partnership deed—Inspector General of area
concerned.
• Calibration of weights and measures—Weights and
Measures Inspector of State.
• Power connection—designated officer of State Electricity
Board.
• Employee strength exceeding 10 with power connection, or
20 without power – Chief Inspector of Factories.
ENVIRONMENT POLLUTION RELATED CLEARANCES
• Pollution control:
• Industries requiring water and affecting
effluent disposal:
• For units functioning outside the industrial
area:
• Registration and licensing of a boiler:
• For registration as a 100 per cent
export-oriented unit (EOU)
Product Specific Clearances
• Establishing a printing press—District Magistrate.
• License for cold storage construction—designated official in State.
• Pesticides – Central/State Agricultural Department—Ministry of
Agriculture.
• Drugs and pharmaceuticals—drug licence from State Drug Controller.
• Safety matches/fireworks—licence under Explosives Act from Directorate
of Explosives, Nagpur.
• Household electrical appliances—licence from the Bureau of Indian
Standards.
• Wood working industry within 8 km from forest—District Forest Officer.
• Milk processing and milk products manufacturing units-approval under
Milk and milk Products Order from State Agricultural/Food Processing
Industries Department above a designated capacity.
