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Capital structure refers to a companys outstanding debt and equity. It allows a firm to
understand what kind of funding the company uses to finance its overall activities and
growth. In other words, it shows the proportions of senior debt, subordinated debt and equity
(common or preferred) in the funding. The purpose of capital structure is to provide an
overview of the level of the companys risk. As a rule of thumb, the higher the proportion of
debt financing a company has, the higher its exposure to risk will be.
Capital structure is commonly known as the debt-to-equity ratio.
A companys capital structure points out how its assets are financed. When a company
finances its operations by opening up or increasing capital to an investor (preferred shares,
common shares, or retained earnings), it avoids debt risk, thus reducing the potential that it
will go bankrupt. Moreover, the owner may choose debt funding and maintain control over
the company, increasing returns on the operations.
Debt takes the form of a corporate bond issue, long-term loan, or short-term debt. The latter
directly impacts the working capital. Having said that, a company that is 70% debt-financed
and 30% equity-financed has a debt-to-equity ratio of 70%; this is the leverage. It is very
important for a company to manage its debt and equity financing because a favorable ratio
will be attractive to potential investors in the business.
Q3.Sources of Capital
The following are the major sources of funding for entrepreneurs:
1. Personal finances
2. Friends and family
3. Angel Investors
4. Debt financing
5. Equity financing
6. Customer financing
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7. Governmentsponsored programs
Personal Finances
People start companies at different points in their lives. Some entrepreneurs start companies
during the early stages of their career. A majority of entrepreneurs start companies at later
stages in their lives and these entrepreneurs often have personal assets that they could use to
finance their ideas. It is important for entrepreneurs to invest their personal savings in their
business ideas as it indicates that the entrepreneur is confident about his or her own idea,
thereby encouraging other investors to look at the idea more seriously. After all, who would
want to invest in a company wherein the founder does not want to bet on the idea?
Additionally, entrepreneurs who do not put their personal savings into the venture can find it
hard to raise money from friends and family. Entrepreneurs should think thoroughly before
investing their personal finances. If the business idea is not feasible, the entrepreneur loses
everything.
Friends and Family
Friends and family are important sources for financing startups since they would like to see
the entrepreneur succeed. Such loans can be obtained quickly as this type of financing is
based more on personal relationships than on financial analysis. However, friends and
relatives who provide business loans sometime feel that they have the right to offer
suggestions concerning the management of the business. Their suggestions might be
orthogonal to the entrepreneurs strategy and might create fissures in the relationships. It is
important to minimize the chance of damaging important personal relationships. Therefore,
entrepreneurs should plan on repaying such loans as soon as possible even if the business
idea fails, thereby ensuring that relationships are maintained.
Angel Investors
A large number of individuals invest in a variety of entrepreneurial ventures. They are
affluent people such as successful entrepreneurs, lawyers, physicians, etc. who have moderate
to significant business experience. This type of financing is called as informal capital because
these individuals do not make such investments in established market places. Such investors
are called business angels. They represent the oldest and the largest segment of the U.S.
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venture capital industry. On average, a typical angel investor invests more than $200,000 a
year. Angels frequently put their mind share in a companys strategy and assist entrepreneurs
in taking their companies forward. Although angel investment is easier to acquire than some
of the more formal types of financing, angels can sometimes be very demanding.
Entrepreneurs should therefore define their relationships with the angels before finalizing the
terms of the agreement. It is imperative to emphasize that any angel investor would be
skeptical to fund a company, wherein the founders do want not invest their personal savings.
Debt Financing
Entrepreneurs can also raise capital from banks through the debt financing route. Although
some angels provide debt capital, commercial banks are the primary providers of debt capital
to small companies. Bankers tend to make business loans through lines of credit, term loans
and mortgages. A line of credit loan is the largest amount of money that the borrower can
obtain from the bank at any one time. An entrepreneur must work with a bank in advance to
obtain a line of credit before the company needs the money because if banks do not know the
specifics of their investment, they will refuse credit. Attempts to obtain line-of-credit loan
instantaneously are generally ineffective. In addition to the line-of-credit load, banks issue
five to ten year term loans that are generally used to finance equipment. Since the economic
benefits of investing in equipment extend beyond a single year, banks are generally open to
lending money to buy equipment that generate revenues, which match the interest to be
received from such a loan. Finally, entrepreneurs can also obtain a mortgage to provide
funding. Mortgages are loans for which certain items of inventory or other properties serve as
collateral. Debt financing has its own set of advantages and disadvantages. Although debt
financing increases the potential for higher rates of return on investment (ROI) and allows
entrepreneurs to retain much of the board control, it also puts entrepreneurs at greater risk.
Irrespective of the startups outcome, banks make sure that they will get their investment
back along with interests. To accomplish this, banks structure their agreements accordingly.
Equity Financing
As opposed to debt financing, equity financing transfers the risk from the entrepreneur to the
investors, but has its own set of drawbacks. Equity financing is when entrepreneurs can raise
money only through selling common or preferred stock to investors. This implies that an
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entrepreneur gives up some of his or her voting rights to investors. Although most angels
offer equity financing, institutional venture capitals make the biggest equity financing
investments. Institutional venture capital firms usually manage large funds - anywhere from
$25 million to $1 billion - and invest in high growth companies. When a VC firm invests in a
company, the firm generally takes a seat in the board of directors. VCs assist the
entrepreneurs in taking the companies forward. The very same VCs do not mind firing
everyone, including the founders and shutting down the company if they determine that it is
economical. In addition, raising venture capital is generally a long shot. Venture capitalists
will not even look into a business plan unless the company meets some of firms criteria.
Customer financing
At times, large corporations or potential customers finance the entrepreneur through debt or
equity routes. Large corporations provide financial and technical assistance to smaller
businesses because as larger corporations downsize their operations for tactical reasons, it
becomes important that their suppliers, frequently small firms, stay healthy. Examples of
large corporations that have historically invested in smaller firms include giants such as
JCPenny, Ford Motors, Motorola, Micron, and Cisco.
Governmentsponsored programs
Several government programs provide financing to small businesses. The federal government
has a long history of helping new businesses get started, primarily through the following
federal programs:
Recently, Congress has voted to increase the size and scope of the above programs. Apart
from the federally sponsored programs, state and local government are also becoming
increasingly active in financing new businesses. The nature of financing varies, but each
program is generally geared to augment other sources of funding. Although it is possible to
raise money with low interest rates and equity through this route, entrepreneurs must have the
patience to go through the time-consuming government bureaucratic processes.
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The greater return on investment of a company increases its capacity to utilise more debt
capital.
(5) Cost of Debt:
The capacity of a company to take debt depends on the cost of debt. In case the rate of
interest on the debt capital is less, more debt capital can be utilised and vice versa.
(6) Tax Rate:
The rate of tax affects the cost of debt. If the rate of tax is high, the cost of debt decreases.
The reason is the deduction of interest on the debt capital from the profits considering it a
part of expenses and a saving in taxes.
For example, suppose a company takes a loan of 0ppp 100 and the rate of interest on this debt
is 10% and the rate of tax is 30%. By deducting 10/- from the EBIT a saving of in tax will
take place (If 10 on account of interest are not deducted, a tax of @ 30% shall have to be
paid).
(9) Risk Consideration: There are two types of risks in business:
(i) Operating Risk or Business Risk:
This refers to the risk of inability to discharge permanent operating costs (e.g., rent of the
building, payment of salary, insurance installment, etc),
(ii) Financial Risk:
This refers to the risk of inability to pay fixed financial payments (e.g., payment of interest,
preference dividend, return of the debt capital, etc.) as promised by the company.
The total risk of business depends on both these types of risks. If the operating risk in
business is less, the financial risk can be faced which means that more debt capital can be
utilised. On the contrary, if the operating risk is high, the financial risk likely occurring after
the greater use of debt capital should be avoided.
(10) Flexibility:
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According to this principle, capital structure should be fairly flexible. Flexibility means that,
if need be, amount of capital in the business could be increased or decreased easily. Reducing
the amount of capital in business is possible only in case of debt capital or preference share
capital.
If at any given time company has more capital than as necessary then both the abovementioned capitals can be repaid. On the other hand, repayment of equity share capital is not
possible by the company during its lifetime. Thus, from the viewpoint of flexibility to issue
debt capital and preference share capital is the best.
(11) Control:
According to this factor, at the time of preparing capital structure, it should be ensured that
the control of the existing shareholders (owners) over the affairs of the company is not
adversely affected.
If funds are raised by issuing equity shares, then the number of companys shareholders will
increase and it directly affects the control of existing shareholders. In other words, now the
number of owners (shareholders) controlling the company increases.
This situation will not be acceptable to the existing shareholders. On the contrary, when funds
are raised through debt capital, there is no effect on the control of the company because the
debenture holders have no control over the affairs of the company. Thus, for those who
support this principle debt capital is the best.
(12) Regulatory Framework:
Capital structure is also influenced by government regulations. For instance, banking
companies can raise funds by issuing share capital alone, not any other kind of security.
Similarly, it is compulsory for other companies to maintain a given debt-equity ratio while
raising funds.
Different ideal debt-equity ratios such as 2:1; 4:1; 6:1 have been determined for different
industries. The public issue of shares and debentures has to be made under SEBI guidelines.
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Stock market conditions refer to upward or downward trends in capital market. Both these
conditions have their influence on the selection of sources of finance. When the market is
dull, investors are mostly afraid of investing in the share capital due to high risk.
On the contrary, when conditions in the capital market are cheerful, they treat investment in
the share capital as the best choice to reap profits. Companies should, therefore, make
selection of capital sources keeping in view the conditions prevailing in the capital market.
(14) Capital Structure of Other Companies:
Capital structure is influenced by the industry to which a company is related. All companies
related to a given industry produce almost similar products, their costs of production are
similar, they depend on identical technology, they have similar profitability, and hence the
pattern of their capital structure is almost similar.
Because of this fact, there are different debt- equity ratios prevalent in different industries.
Hence, at the time of raising funds a company must take into consideration debt-equity ratio
prevalent in the related industry.
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Growth
Firms that are growing quickly are more likely to take on debt capital and will borrow money
faster. More established and mature companies will typically seek out less debt capital than
newer and smaller businesses.
Market conditions
Fluctuating market conditions affect capital structure. Tight credit conditions following the
recession created a challenging environment for businesses to borrow money and grow.
Fortunately, lenders have become more lenient. Opportunities have opened up for companies
to borrow money and increase their debt capital, leading to a shift in capital structures.
Management
Business owners and company management are ultimately responsible for decisions
regarding capital structure. More aggressive managers will borrow more money to grow the
business, while conservative owners will rein in spending for higher profits. While most
businesses want to find a balance, management styles can sway capital structure to either end
of the spectrum.
Industry
In highly competitive industries, it may be harder for companies to find financing, as new
companies may carry a higher risk. These companies will then be less reliant upon debt
capital.
Business risk
If a company does not have a record of stable earnings, its risk of failure increases. If a
company has an unstable capital structure with high amounts of debt, it is also more likely to
end up in bankruptcy. These are both examples of high risk companies. Business risk and
optimal debt capital have an inverse relationship, as companies will still be responsible for
repaying their debt obligations when profits are down.
Some of the major factors influencing capital structure are as follows:
1. Financial Leverage or Trading on Equity:
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The word equity denotes the ownership of the company. Trading on equity means taking
advantage of equity share capital to borrowed funds on reasonable basis. It refers to the
additional profits that equity shares earn because of funds raised by issuing other forms of
securities, viz., preference shares and debentures.
It is based on the premise that if the rate of interest on borrowed capital and the rate of
dividend on preference capital are lower than the general rate of companys earnings, the
equity shareholders will get advantage in the form of additional profits. Thus, by adopting a
judicious mix of long-term loans (debentures) and preference shares with equity shares,
return on equity shares can be maximized.
Trading on equity is possible under the following conditions:
(i) The rate of companys earnings is higher than the rate of interest on debentures and the
rate of dividend on preference shares.
(ii) The companys earnings are stable and regular to afford payment of interest on
debentures.
(iii) The company has sufficient assets which can be used as security to raise borrowed funds.
2. Expected Cash Flows:
Debentures and preference shares are often redeemable, i.e., they are to be paid back after
their maturity. The expected cash flows over the years must be sufficient to meet the interest
liability on debentures every year and also to return the maturity amount at the end of the
term of debentures. Thus, debentures are not suitable for those companies which are likely to
have irregular cash flows in future.
3. Stability of Sales:
Stability of sales turnover enhances the companys ability to pay interest on debentures. If
sales are rising, the company can use more of debt capital as it would be in a position to pay
interest. But if sales are unstable or declining, it would not be advisable to employ additional
debt capital.
4. Control over the Company:
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The control of a company is entrusted to the Board of Directors elected by the equity
shareholders. If the board of directors and shareholders of a company wish to retain control
over the company in their hands, they may not allow to issue further equity shares to the
public. In such a case, more funds can be raised by issuing preference shares and debentures.
5. Flexibility of Financial Structure:
A good financial structure should be flexible enough to have scope for expansion or
contraction of capitalisation whenever the need arises. In order to bring flexibility, those
securities should be issued which can be paid off after a number of years.
Equity shares cannot be paid off during the life time of a company. But redeemable
preference shares and debentures can be paid off whenever the company feels necessary.
They provide elasticity in the financial plan.
6. Cost of Floating the Capital:
Cost of raising finance by tapping various sources of finance should be estimated carefully to
decide which of the alternatives is the cheapest. Prevailing rate of interest, rate of return
expected by the prospective investors, and administrative expenses are the various factors
which affect the cost of financing.
Generally, cost of financing by issuing debentures and preference shares for a reputed
company is low. It is also essential to consider the floatation costs involved in the issue of
shares and debentures, such as printing of prospectus, advertisement, etc.
7. Period of Financing:
When funds are required for permanent investment in a company, equity share capital is
preferred. But when funds are required to finance expansion programme and the management
of the company feels that it will be able to redeem the funds within the life-time of the
company, it may issue redeemable preference shares and debentures.
8. Market Conditions:
The conditions prevailing in the capital market influence the determination of the securities to
be issued. For instance, during depression, people do not like to take risk and so are not
interested in equity shares. But during boom, investors are ready to take risk and invest in
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equity shares. Therefore, debentures and preference shares which carry a fixed rate of return
may be marketed more easily during the periods of low activity.
9. Types of Investors:
The capital structure is influenced by the likings of the potential investors. Therefore,
securities of different kinds and varying denominations are issued to meet the requirements of
the prospective investors. Equity shares are issued to attract the people who can take the risk
of investment in the company. Debentures and preference shares are issued to attract those
people who prefer safety of investment and certainty of return on investment.
10. Legal Requirements:
The structure of capital of a company is also influenced by the statutory requirements. For
instance, banking companies have been prohibited by the Banking Regulation Act to issue
any type of securities except equity shares.
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inculcate, develop, and polish the capabilities and skills as the prerequisites of a person to
become and behave as an entrepreneur.
The main objectives of an entrepreneurial development programme are:
1. To identify and train the potential entrepreneurs in the region;
2. To develop necessary knowledge and skills among the participants in EDPSs.
3. To impart basis managerial knowledge and understanding;
4. To provide post-training assistance;
5. To develop and strengthen entrepreneurial quality and motivation;
6. To analyze the environmental issues related to the proposed project;
7. To help in selecting the right type of project and products;
8. To formulate the effective and profitable project;
9. To enlarge the supply of entrepreneurs for rapid industrial development;
10. To develop small and medium enterprises sector which is necessary for employment
generation and wider dispersal of industrial ownership;
11. To industrialize rural and backward regions;
12. To provide gainful self-employment to educated young men and women;
13. To diversity the source of entrepreneurship;
14. To know the pros and cons of being an entrepreneur.
15. To provide knowledge and information about the source of help, incentives and subsidies
available from government to set up the project;
16. To impart information about the process, procedure and rules and regulations for setting
up a new projects.
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Schemes:
SCHEME
FOR
INFRASTRUCTURE
ASSISTANCE
OF
FOR
EXISTING
STRENGTHENING
AND
NEW
OF
TRAINING
ENTREPRENEURSHIP
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existing EDIs in the country. Under the scheme, a matching grant of 50 per cent,
subject to a ceiling of Rs.100 lakh, is provided for building, equipment, training aids
etc., the balance being contributed by the State/Union Territory Governments and
other agencies. The financial assistance provided under this scheme is only catalytic
and supportive to the contribution and efforts of State/Union Territory Governments
and other agencies. Under no circumstances grant funds provided under the scheme
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era of globalisation. 7.3.2 The academic activities of the Institute are organized through
centres of excellence focusing on specific needs of the MSMEs. The Academic Council
of the Institute is the central coordinating body for benchmarking, formulation and
evaluation of academic activities and programmes.
INDIAN INSTITUTE OF ENTREPRENEURSHIP (IIE), GUWAHATI
NATIONAL
INSTITUTE
FOR
ENTREPRENEURSHIP
AND
SMALL
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2. Lack of education: Women in India are lagging far behind in the field of education. Most
of the women (around sixty per cent of total women) are illiterate. Those who are educated
are provided either less or inadequate education than their male counterpart partly due to
early marriage, partly due to son's higher education and partly due to poverty. Due to lack of
proper education, women entrepreneurs remain in dark about the development of new
technology, new methods of production, marketing and other governmental support which
will encourage them to flourish.
3. Problem of finance: Women entrepreneurs suffer a lot in raising and meeting the financial
needs of the business. Bankers, creditors and financial institutions are not coming forward to
provide financial assistance to women borrowers on the ground of their less creditworthiness
and more chances of failure.
4. Skepticism of Financial Institution: Financial Institutions and bankers are skeptical
about the entrepreneurial abilities of women. These institutions consider women loans as
higher risk than men.
5. Obsolescence of technology & resulting increase in cost of production: Several factors
including inefficient management contribute to the high cost of production which stands as a
stumbling block before women entrepreneurs. Women entrepreneurs face technology
obsolescence due to non-adoption or slow adoption to changing technology which is a major
factor of high cost of production.
6. Low risk-bearing capacity: Women in India are by nature weak, shy and mild. They
cannot bear the amount of risk which is essential for running an enterprise. Lack of
education, training and financial support from outsides also reduce their ability to bear the
risk involved in an enterprises.
7. Lack of entrepreneurial aptitude: Lack of entrepreneurial aptitude is a matter of concern
for women entrepreneurs. They have no entrepreneurial bent of mind. Even after attending
various training programs on entrepreneur ship they fail to tide over the risks and troubles
that may come up in an organizational working.
8. Limited managerial ability: Women entrepreneurs are not efficient in managerial
functions like planning, organizing, controlling, coordinating, motivating etc. of an
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enterprise. Therefore, less and limited managerial ability of women has become a problem for
them to run the enterprise successfully.
9. Legal formalities: Fulfilling the legal formalities required for running an enterprise
becomes an uphill task on the part of an women entrepreneur because of the prevalence of
corrupt practices in government offices and procedural delays for various licenses, electricity,
water and shed allotments. In such situations women entrepreneurs find it hard to concentrate
on the smooth working of the enterprise.
10. Lack of self confidence: Women entrepreneurs because of their inherent nature, lack
self-confidence which is essentially a motivating factor in running an enterprise successfully.
They have to strive hard to strike a balance between managing a family and managing an
enterprise.
Q3. Opportunities for rural entrepreneur.
Rural entrepreneurs have a number of opportunities in several areas. Some of the
opportunities are as follows:
a. Manufactured items:
Some of the product categories are well established in rural areas which include:
b. Tourism sector:
Some of the rural areas provide a rich source of tourist attraction, especially waterfalls,
wildlife and so on. Therefore there is a good scope for entrepreneurs in rural areas in respect
of restaurants, transport operations and so on.
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h. Dairy business:
i. Rural entrepreneurs have a good scope in dairy business. India is the largest producer of milk
in the world. Dairy products such as packed milk, ice-creams and other milk based products
have a good demand in the urban markets.
Q4. Future of entrepreneurship in India
In India, business was traditionally considered to be the domain of scholarly challenged
individuals or the result of natural inheritance within business communities. Gradually, the
appetite for risk and the acceptance of failure increased, but only recently have alternate
professions and the idea of "following ones dream" gained approval. In particular,
entrepreneurship caught the fancy of the Indian middle class after the economy was
liberalized. The economic reforms introduced in 1991 reduced the bureaucratic controls,
promoted private enterprise, and lowered the barriers to creating new businesses. Coupled
with the emergence of knowledge economy, the demand for skilled employees greatly
increased and a trend emerged toward technology entrepreneurship in the services sector,
which is less capital-intensive than traditional industries.
Indeed, the future of entrepreneurship in India lies in the services sector, and the Government
of India is providing support to encourage this trend. However, there are as many challenges
as there are opportunities, as will be discussed below.
Traditionally, government programs, and support from the banking and finance industry, were
largely focused and aligned to the manufacturing sector with its strong product focus.
Industry associations such as the Confederation of Indian Industry (CII), the Federation of
Indian Chambers of Commerce and Industry (FICCI) and the Associated Chambers of
Commerce and Industry of India (ASSOCHAM) have existed since the pre-independence era
and lobby the government for policy initiatives that favour traditional businesses and
industries. With the information technology sector emerging as a rapidly growing segment of
Indian industry the National Association of Software and Services Companies (NASSCOM)
was formed in 1988 as the industry association for information technology industry.
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Intellectual Property Rights are legal rights, which result from intellectual activity in
industrial, scientific, literary & artistic fields. These rights Safeguard creators and other
producers of intellectual goods & services by granting them certain time-limited rights to
control their use. Protected IP rights like other property can be a matter of trade, which can be
owned, sold or bought. These are intangible and non exhausted consumption.
TYPES/TOOLs OF IPRs: a. Patents. b. Trademarks. c. Copyrights and related rights. d.
Geographical Indications. e. Industrial Designs. f. Trade Secrets. g. Layout Design for
Integrated Circuits. h. Protection of New Plant Variety.
a. Patent
A patent is an exclusive right granted for an invention, which is a product or a process that
provides a new way of doing something, or offers a new technical solution to a problem. It
provides protection for the invention to the owner of the patent. The protection is granted for
a limited period, i.e 20 years. Patent protection means that the invention cannot be
commercially made, used, distributed or sold without the patent owner's consent. A patent
owner has the right to decide who may - or may not - use the patented invention for the
period in which the invention is protected. The patent owner may give permission to, or
license, other parties to use the invention on mutually agreed terms. The owner may also sell
the right to the invention to someone else, who will then become the new owner of the patent.
Once a patent expires, the protection ends, and an invention enters the public domain, that is,
2 the owner no longer holds exclusive rights to the invention, which becomes available to
commercial exploitation by others.
b. Trademarks:
A trademark is a distinctive sign that identifies certain goods or services as those produced or
provided by a specific person or enterprise. It may be one or a combination of words, letters,
and numerals. They may consist of drawings, symbols, three- dimensional signs such as the
shape and packaging of goods, audible signs such as music or vocal sounds, fragrances, or
colours used as distinguishing features. It provides protection to the owner of the mark by
ensuring the exclusive right to use it to identify goods or services, or to authorize another to
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use it in return for payment. It helps consumers identify and purchase a product or service
because its nature and quality, indicated by its unique trademark, meets their needs.
Registration of trademark is prima facie proof of its ownership giving statutory right to the
proprietor. Trademark rights may be held in perpetuity. The initial term of registration is for
10 years; thereafter it may be renewed from time to time.
c. Copyrights and related rights:
Copyright is a legal term describing rights given to creators for their literary and artistic
works. The kinds of works covered by copyright include: literary works such as novels,
poems, plays, reference works, newspapers and computer programs; databases; films, musical
compositions, and choreography; artistic works such as 3 paintings, drawings, photographs
and sculpture; architecture; and advertisements, maps and technical drawings. Copyright
subsists in a work by virtue of creation; hence its not mandatory to register. However,
registering a copyright provides evidence that copyright subsists in the work & creator is the
owner of the work.
d. Geographical Indications (GI):
GI are signs used on goods that have a specific geographical origin and possess qualities or a
reputation that are due to that place of origin. Agricultural products typically have qualities
that derive from their place of production and are influenced by specific local factors, such as
climate and soil. They may also highlight specific qualities of a product, which are due to
human factors that can be found in the place of origin of the products, such as specific
manufacturing skills and traditions. A geographical indication points to a specific place or
region of production that determines the characteristic qualities of the product that originates
therein. It is important that the product derives its qualities and reputation from that place.
Place of origin may be a village or town, a region or a country. It is an exclusive right given
to a particular community hence the benefits of its registration are shared by the all members
of the community. Recently the GIs of goods like Chanderi Sarees, Kullu Shawls, Wet
Grinders etc have been registered. Keeping in view the large diversity of traditional products
spread all over the country, the registration under GI will be very important in future growth
of the tribes / communities / skilled artisans associated in developing such products.
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Sources of Funds:
Capital is the life blood for any business and to start the business we required it as well and
being the sole proprietor I have invest everything from my personal savings and no loan from
any bank or person is taken to keep business free from debt.
Sources of Funds.
Owners Fund
(In Rupees)
25,00,000
Fixed Capital:
We dont require much of fixed capital in business due to nature of business.
Working Capital:
As its the first year of business we are keeping aside
Startup requirement:
1. We have purchased brand new 8 bikes out of which 6 will be given to customer on
rent and 2 will be used as back up vehicle.
2. Garage has been set up with the team of 7 experienced mechanics.
3. Website has been launched for promotional activities.
4. Tie up with travel agents of Manali.
5. License has been obtained from HP government to run business.
6. We have also tie ups with transporter supplying goods to Leh-Ladakh.
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Financial Statements:
Income & Expenditure Account as on 31-3-2015 (estimated)
Income:
Amount
Rs.
Revenue
12,00,000
Total
12,00,000
Expenses:
Rent paid (10,000 x 12)
Insurance
Advertising expenses
Salary to staff
Fuel
Stationery expenses
Electricity charges (1,000 x 12)
Telephone charges (1,500 x 12)
Travelling & transportation
News paper & magazine (250 x 12)
Water Charges (250 x 12)
1,20,000
24,000
25,000
5,82,000
40,000
5,000
12,000
18,000
56,000
3,000
3,000
Total
Profit
Capital Account As on 31-3-2015( estimated)
(8,88,000)
3,12,000
Particulars
Drawings
Rs.
1,20,000
Profit B/f
Particulars
Rs.
3,12,000
Balance c/f
Total
1,92,000
3,12,000
Total
3,12,000
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Particulars
Amount
Rs.
Assets
Current Assets
Cash
Prepaid Expenses
Total Current Asset
8000
7000
15,000
Fixed Assets
Bike
Furniture & Fixtures
15,00,000
50,000
40,000
15,90,000
16,05,000
Liabilities
Current liabilities
Accounts Payable
Other Payables
Total Liabilities
Total Capital
Total Liabilities
10,000
2,000
12,000
1,92,000
2,04,000
Owners Equity
Total Liabilities & Owners Equity
14,01,000
16,05,000
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in