Mekelle University 
College of Business and Economics 
Department of Cooperative Studies

Teaching material prepared for the course: 

Course name: Entrepreneurship & Small Business Management 
Course code: CMgt3112
Credit hour: 3
Year III, Semester II
Compiled by: Mr. Tesfay G.hiwet
April 2020 

Course Rationale:

Entrepreneurs perform vital function in economic development. This course is designed to acquaint the students with the basic concepts of entrepreneurship. In addition to this, the students will be trained to enhance the competences of entrepreneurs so that they can be self starters of business organizations which in turn can enhance the economic development of the nation

Course Objective:

One of the important inputs in any economic development of a country is entrepreneurship. Moreover, the entrepreneurship activity is decisive to accelerate development. Entrepreneurship is the life blood of any economy and it applies more to developing economy like Ethiopia. This course, of course, is designed to enhance entrepreneurship development which in turn can lead economic development.
Course Description:

The course entrepreneurship and business management addresses the basic concepts of entrepreneurs, entrepreneurship, creative process, business plan and the ways to manage business organizations effectively and efficiently. 

CHAPTER ONE
Entrepreneurs and Entrepreneurship 
1.1.	Definition
1.1.1 What is Entrepreneur?
Concerning entrepreneurship there a dozens of definitions. Such definitions include: 
•	Entrepreneurs are action-oriented, highly motivated individuals who take risks to achieve goals.  
•	Entrepreneurs are people who have the ability to see and evaluate business opportunities; the ability to gather the necessary resources to take advantage of them; and the ability to initiate appropriate action to ensure success.  
•	Economists may view entrepreneurs as those who bring resources together in unusual combinations to generate profits.  
•	Psychologists tend to view entrepreneurs in behavioral terms as those achievement-oriented individuals driven to seek challenges and new accomplishments.   
•	Corporate managers too often view entrepreneurs as small businesspersons lacking the potential needed for corporate management.   
•	Drucker states "Entrepreneur is someone who always searches for change, responds to it, and exploits it as an opportunity.”

The entrepreneur is a combination of the thinker and the doer.  The entrepreneur sees an opportunity for a new product or service, anew approach anew policy, or a new way of solving a historic problem.  But, the entrepreneur also does something about what is seen. The entrepreneur seeks to have an impact on the system with his/her idea, product, or service.  Entrepreneurs take the risks necessary in producing goods and services.  In this way they act as the energizers of the business system. Entrepreneurs are instruments of change. 

1.1.2 What is Entrepreneurship?
Entrepreneurship as defined by Ronstadt is the dynamic process of creating incremental wealth created by individuals who assume the major risks in terms of equity, time and/or career commitments of providing value for some product or service.  The product or service itself may or may not be new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources. 

Entrepreneurship is the process of creating and building something of value from practically nothing.  That is, entrepreneurship is the process of creating or seizing an opportunity and pursuing it regardless of the resources currently controlled.  Entrepreneurship involves the definition, creation, and distribution of value and benefits to individuals, groups, organizations, and society.  Entrepreneurship is very rarely a get-rich-quick proposition; rather, it is one of building long–term value and durable cash flow streams.

Fundamentally, entrepreneurship is a human creative act.  It involves finding personal energy by initiating and building an enterprise or organization, rather than by just watching, analyzing, or describing one.  Entrepreneurship usually requires a vision and the passion, commitment, and motivation to transmit this vision to other stakeholders, such as partners, customers, suppliers, employees and financial backers.  It also requires a willingness to take calculated risks-both personal and financial and then doing everything possible to influence the odds.

Entrepreneurship involves building a team of people with complementary skills and talents; of sensing an opportunity where others see chaos, contradiction, and confusion; and of finding, marshaling, and controlling resources (often owned by others) to pursue the opportunity. Entrepreneurship involves making sure the venture doesn’t run out of money when it needs money most.

1.2.	Entrepreneurial Traits and Characteristics - Entrepreneurial Competences 
Entrepreneurs are individuals who are supposed to have the following traits.
Need for achievement- their social backgrounds may give them an overriding need to achieve. This can come from childhood deprivations, or competitive urges born of self-confidence.  
Self- Determination- they probably have great faith in their ability to control their personal environment, rejecting too high an influence of chance or fate.  
Desire for Independence- they wish for autonomy believing that independence of action is the only sure way to get what they need.  
Innovation- they constantly assess market demands. Seek opportunities to be innovative in meeting market demand. 

1.3.	Factors pushing/pulling Starting a Business
Some of the reasons for the difficulties in classifying those involved in small business management is the wide variety of motives for their involvement in small firms.  The reason for small firm formation can be divided between “pull” and “push” influences.
Some individuals are attracted towards small business ownership by positive motives such as a specific idea which they are convinced will work.  “Pull” motives include:

1.	Desire for Independence
This features prominently in several research studies as the key motivator.  Many reports shows that the need to gain and keep independence as a distinguishing feature of small business owner-managers. 

2.	Desire to Exploit an Opportunity
The identification of a perceived gap in the market place through personal observation or experience is also a common reason for starting a business.  
Entrepreneurs may seek to exploit this opportunity through special knowledge, product development or they may hire the appropriate technology and skills.

3.	Turning a Hobby or Previous Work Experience into a Business.
Many new entrepreneurs seek fulfillment by spending more time involved in a cherished hobby, or part of their work that they particularly enjoy.  Although research confirms that founders tend to establish business in activities of which they have direct prior experience, this is often precipitated by a ‘push’ motive, such as redundancy, rather than part of a considered decision process.

4.	Financial Incentive 
The rewards of starting a business can be high, and are well publicized by those selling ‘how to’ information to would-be entrepreneurs.  The promise of long term financial independence can clearly be a motive in starting a new firm, although it is usually not quoted as frequently as other factors. 

Many people are pushed into founding a new enterprise by a variety of factors including: 

5.	  Redundancy (Joblessness)
This has proved a considerable push into entrepreneurship particularly when accompanied by a generous handshake in a locality where other employment possibilities are low. 

6.	Unemployment (or threat of)  
Job insecurity and unemployment varies in significance by region, and by prevailing economic climate.  A study reported that 25% of business founders in the late 1970s were pushed in this way, whilst later research showed a figure of 50% when unemployment nationally was much higher. 

7.	Disagreement With Previous Employer:
Uncomfortable relations at work have also pushed new entrants into small business. The dividing line between those ‘pulled’ and those ‘pushed’ is often blurred.  Many people considering an opportunity or having a desire for independence still need some form of push to help them make their decision.  

1.4. Importance of Entrepreneurship 
One of the yardsticks of a country’s economic development and technological advancement is its progress in business. If we glance around us, we can see how important business is in everyday lives. 

The trains and lorries carrying goods, the various shops on every street in our towns with their display of goods and offers of services and the business transactions that are carried out in the traditional markets and business areas demonstrates this validity of business. 

Accounting to Rachman (1985:100), though the vast majority of the jobs they create are low-paying service positions like sales clerk, waiter, or waitress; these nevertheless are jobs that help put bread on people’s tables. Other important way small businesses contribute to economic growth by fostering innovation.  

Moreover, many small businesses in any society exist because they meet customers need for specialized personal services. From all these discussions it can be said that small businesses are very important to the national economies. Their importance in countries like ours where it is difficult to raise capital by both individuals and government to establish big businesses cannot be surpassed.
It is obvious that Ethiopia has planned to be one of the middle income countries in the world in the coming fifteen years.  Towards achieving this plan our government has designed various strategies as ways out to reach there.   When we directly refer the current five years growth and transformation plan which is part of the twenty years strategic objective of our country, we find entrepreneurial development as one of the major direction/strategies. 
Increasing  number  of  entrepreneurs  in  a  given  nation  implies:  self-employment  is increasing  and  employment  opportunity  is  created  hence  unemployment  situation  is decreased  as  well  as  government’s  income  from  income  tax  is  increased;  import substitution  and/or  exportable  products  might  be  produced  hence  the  nation’s  trade balance be positively impacted as well as hard currency need be decreased; better and variety  of  products  are  supplied  to  the  market  hence  life  would  be  easy  and comfortable. 

These mentioned entrepreneurship importance to a growing nation like Ethiopia can be secured when the nation has as many entrepreneurs as possible.  So as to create as many entrepreneurs as possible one of the mechanisms is to train prospective graduates on entrepreneurial concepts. For a long time it was thought that entrepreneurs were special, that they were just born with the ability and desire to go their own way, on their own. Latter it is discovered that entrepreneurs learn to do what they do that they also learn, to a large extent, to be who they are.  

CHAPTER TWO
Entrepreneurship and Innovation
2.1 Creativity as a prerequisite to Innovation
Creativity: The ability to bring something new. Creativity is the ability not the activity of bringing something new. Innovation: is the process of doing new things.
The distinction is important. Ideas have little value until they are converted in to new products, services, or processes. Innovation, therefore, is the transformation of creative ideas into useful applications, and creativity is a prerequisite to innovation.
2.2. The Creative Process
Ideas usually evolve through a creative process whereby imaginative 
people germinate ideas, nurture (encourage to flourish) them, and develop
 them successfully. In each stage, a creative individual behaves 
differently to move an idea from the seed stage of germination to 
verification. The stages are: 	

1.	The Creative Process (Germination)
Idea Germination- The seeding Stage of a new Idea new idea, Recognition	
Germination stage is a seeding process. Exactly how on idea is germinated is mystery (unknown); it is not something that can be examined under a microscope. However most creative ideas can be traced to on individual’s interest in or curiosity about a specific problem or area of study. For most entrepreneurs, ideas begin with an interest in a subject or curiosity about finding a solution for a particular problem.
2.	The Creative Process (Preparation)
Preparation-conscious search for knowledge, rationalization  	
Once a seed of curiosity (interest) has taken form as a focused idea, creative people embark on (get on) a conscious search for answers. Then they begin an intellectual journey, seeking information about the problem and how others tried to solve it. Inventors will setup a laboratory experiments. More often, conscious deliberation will only overload the mind, but the effort is important in order to gather information and knowledge vital for an eventual solution. 
3.	The Creative Process (Incubation)
Incubation- subconscious assimilation of information, fantasizing (dreaming)	
Individuals sometimes concentrate intensely (deeply) on an idea, but more often, they simply allow ideas time to grow without intention effort. Few great ideas come from thunderbolts (eye opener) (flashes of Genius). Most evolve in the mind creative people while they go about activities. 	
•	Incubation is the stage of “mulling it over” (thinking over) while the subconscious intellect assume control of the creative process.
•	When we consciously focus on a problem, we behave rationally to attempt to find systematic resolution. When we rely on subconscious (unintentional) process, our mind is untrammeled (free) by the limitation of human logic.
•	The subconscious mind is allowed to wander (travel without destination) and to pursue fantasies (imaginations) and therefore open to unusual information and knowledge that we cannot assimilate in conscious state.
4.	The Creative Process (Illumination)
Illumination-Recognition of idea as being feasible-Realization (intellectual or spiritual enlightenment)	

	
•	Illumination (brightness) occurs when the idea resurfaces (reemerges) as realistic creation. The Fable (story) of the thunderbolt is captured in a moment of illumination. Illumination may be triggered by an opportunity incident. Most creative people go through many cycles of preparation and incubation, searching for that incident as a catalyst to give their idea full meaning.
•	Illumination is important for entrepreneurs because ideas, by themselves, have little meaning. Reaching illumination stage separates day-dreamers from creative people who find a way to transmute (convert) value.

5.	The Creative Process (Verification)
Verification- Application or test to prove ideas has value- Validation.	
An idea once illuminated in the mind of an individual still has little meaning until verified as realistic and useful. Entrepreneurial effort is essential to translate an illumination idea into verified, realistic and useful application. Verification is the development stage of refining knowledge into application. This is often tedious (boring) and requires perseverance (persistence) by an individual committed to finding way to “harvest” the practical results of his/her creation. During this stage, many ideas fall by the wayside (to fail to continue or complete something) as they prove to be impossible or to have a little value. 
Seven Conditions Required for Success in Innovation
1.	An outstanding person in an executive leadership position to support strategic decisions that encourage creativity and innovation development.
2.	An operational leader to carry out the essential tasks of converting knowledge into a commercial application.
3.	A clear need for the application by sufficient potential consumers to warrant the commitment of resources to innovation.
4.	The realization of the product, process, or service as a useful innovation providing value to society.
5.	Good cooperation among the crucial player and among diversified function in an organization, all whom together, must bring the idea to fruition (completion).
6.	Availability of  resources and the supporting technology to succeed in the endeavor
7.	Cooperation and support from external sources who can influence the success of an innovation, including government agencies, investors, supplier, and creditors.

2.5. Windows and Corridors 
A window is a time horizon during which opportunities exist before something else happened to eliminate them. A unique opportunity, once shown to produce wealth, will attract competition, and if the industry is easy to enter, the industry will become rapidly saturated. Every successful product and service has had an optimal period of time for commercialization. Those introduce too early have usually failed, and those introduced too late suffered from crowded markets. Entrepreneurs, therefore, must not only recognize opportunities, but also take advantage of them while windows exist to be successful. The corridor principle suggest that opportunities evolve from entrepreneurs being positioned in similar work or having had experience with related venture so that when a window opens it is easy for them to move quickly into a new venture.
2.6. Success Factors for Entrepreneurs
•	The Entrepreneurial Team: The term team is used because, more often than not, entrepreneurs do not start business by themselves; they have teams, partners, close associates, or extensive network of advisers. We can infer that success is closely tied to a solid knowledge base and substantial experience in related filed of endeavor. 
•	Venture Products and Services: Nearly all successful ventures start small and grow incrementally; few “gear up” with substantial organizations for a big-bang (explosion) start. Positive Cash Flow, Profit Margins, Cost Control and overhead monitoring, are all a key success factors.
•	Marketing and Timing: Successful entrepreneur tend to have a clear vision of both existing and potential customers. An entrepreneur loaded with talent and great idea will not convince investor that a venture is viable without valid market research. There are not shortcuts; innovation requires market demand, not simply a good idea.
•	Business ideology:  Business ideology is defined as system of beliefs about how one conducts an enterprise.  These beliefs include a commitment to providing customers with value, the ability to take calculated risk, the determination to grow.

Chapter Four 
Creating and Developing the Business
5.1.	Developing and using a business plan
5.1.1.	Information needs
Before you can think about opening the doors to your new enterprise, you need to develop a solid business plan. A business plan is a written document that serves as a road map for operating your business. It identifies the purpose of your business as well as the resources need to make it a success. A business plan typically consists of four general types of information.
Executive Summary: The executive summary provides an overview of your business venture. It includes a synopsis of the company, as well as your mission statement and key selling points like offering outstanding customer service or superior products. The summary also outlines which niche you plan to attain in the market and why you think there is a need for your business. Your executive summary should be between one and two pages in length.
Marketing Strategy: Your marketing plan should first identify your target market, which can be broken down into demographic factors like age, gender, level of income and education. It should identify the methods you intend to use to reach your target market, like the type of media for advertising or any types of promotional methods like special pricing or events. Your marketing strategy must also factor in your competition, identifying the key players in your market and how you plan to obtain some of their market share.
Financial Information: Your business plan should include an array of financial data. In particular, you should show projections for income for each month during the first 2 years, monthly cash flow projections for the first two to three years, a projected annual balance sheet and a break-even analysis, which predicts the point at which your business will begin to turn a profit. If you are attempting to obtain financing, you need to justify the amount of the loan you are asking for with your detailed financial statements.
Operational Information: Your business plan must detail your management and operational structure. If you are operating as a sole proprietor, this will be relatively simple. However, if your organization involves several stakeholders, you will need to supply an organization chart. If your business involves a complex process such as the manufacturing of a product, detail each step of the process in your business plan. Also identify items such as hours of operation and how many employees you will need.

5.1.2.	Writing the business plan
What is a Business Plan?
A business plan can be defined in different ways. A business plan is a comprehensive set of guidelines for a new venture. A business plan is also called a feasibility plan that encompasses the full range of business planning activities, but it seldom requires the depth of research or detail expected for an established enterprise.
A business plan (feasibility plan) is an outline of potential issues to address and a set of guidelines to help an entrepreneur make better decisions. This plan would present your basic business idea and all related operating, marketing, financial and managerial considerations. In a sense, it would represent your “game plan”.  It would crystallize the dreams and hopes that provide your motivation. It is sometimes called a “deal” by those who invest in new ventures. Whatever the name, it should lay out your idea, describe where you are, point out where you want to go, and how you propose to go there.
The business plan may present a proposal for launching an entirely new business. More commonly, perhaps, it may present a plan for a major expansion of a firm that has already started operation. For example, an entrepreneur may open a small local business and see the possibility of opening additional branches or extending its success in other ways.
The Purpose of Business Plan
Many managers already involved in the small business or those considering it as a possibility, perceive the business plan, the first and foremost, as a document that is produced for the bank manager, investor or Venture Capital Company in order to raise money. For this reason, small businesses that do not have external funding requirements tend not to write formal business plans. The reasons for this include:
•	A lack of understanding of the process or benefits of business planning.
•	Pressure on ‘doing’ rather than ‘thinking’ or gathering information, in the small business environment.
•	The belief that strategic planning is for larger organization and big business resources, and not necessary for smaller firms.
Importance of the Business plan
One of the most important steps in establishing any new business is the construction of a business plan. It can help the owner/manager crystallize and focus his ideas.  Any activity that is initiated without adequate preparation tends to be haphazard and unsuccessful. Planning is a mental process. Thinking about a proposed business becomes more rigorous as rough ideas must be crystallized and quantified on paper.
It can help the owner/manager set objectives and give him a yardstick against which to monitor performance. Perhaps of more immediate importance, it can also act as a vehicle to attract any external finance needed by the business. It can convince investors that the owner/manager has identified high growth opportunities, and that he has the entrepreneurial flair (skill) and managerial talent to exploit that opportunity effectively and that he has a rational, coherent and believable program for doing so. It entails taking a long – term view of the business and its environment. It emphasizes the strengths and recognizes the weaknesses of the proposed venture. The plan can uncover weaknesses or alert the entrepreneur to sources of possible danger.
The well – conceived plan thus offers a sound basis for operation a business plan can be used at different times, with benefits for several audiences.  
5.3.3. Using and implementing business plan
When
Business plans are produced:
1.	At the start up of a new business: After the concept stage of initial ideas and feasibility study, a new business start-up may go through a more detailed planning stage of which the main output is the business plan.
2.	Business Purchase: A detailed plan, which tests the sensitivity of changes to key business  variables (e.g. what if sales drop by 25%, what if overheads increase by  25% … etc), greatly increases the prospective purchasers understanding of the level of risk they will be accepting, and the likelihood of rewards being available.
3.	Ongoing: It motivates any small business manager to periodically, review its business in the constantly changing environment. An initial business plan is not a document to be put in a drawer and forgotten. It can be the live that focus on how a small business responds to the inevitable changes around it.
4.	Major decisions: Even if planning is not carried out on a regular basis, it is usually instigated (started) at a time of major change. Again it may be liked to a need for finance: for example, the need for major new investment in equipment, or funds to open a new outlet. 
Who
Three types of people will be interested in a business plan: the managers who run or intend to run the business on a day to day basis; the owners, or prospective equity investors; and the lenders who are considering loans for the enterprise.
1.	Managers: Are involved in small business planning both as producers and recipients of the plan. The management of a small enterprise is the people likely to be sufficiently knowledgeable to produce a business plan. A corporate planning department does not usually exit in small business organizations. Business plans are also written to aid small business managers. An obvious conclusion, but one that is often overlooked, is that the managers themselves can be very important beneficiaries, not only of the plan, but also the planning process.
2.	Owners: The managers of a small enterprise may also be the owners and take a keen interest in the planning process, wearing their shareholders’ hat. A plan may be intended for prospective equity partners, either a sleeping partner looking for an investment, or an active partner looking to join an existing small business. Owners may also be lenders, as in venture capital companies, who take an equity stake in return for providing loans.
3.	Lenders: The traditional recipient of the business plan is the bank manager.  It is true that the major banks encourage the production of business plans to justify overdrafts and loans, offering literature and advice on putting together business plans. Other lenders of money, from private individuals to venture capital companies, will also expect to make their investment decision after the presentation of a formal business plan.
Why
	These three groups will have some shared, and some more separate, motives for using a business plan. Managers, owners and lenders  will all be seeking to investigate the following issues:
1.	Assessing the feasibility and viability of the business or project: Will it work and become commercially and financially viable?   It is in every one’s interests to make mistakes on paper, hypothetically testing for feasibility, before trying the real thing.
2.	Setting objectives and budgets: What is the overall direction and financial target set by the plan? Having a clear financial vision with believable budgets is a basic requirement of everyone involved in a plan.
3.	Calculating how much money is needed: What level and type of finance is required to make the plan work? A detailed cash flow with assumption is a vital ingredient to precisely quantify earlier guest mates of the likely funds required.

The Format of a Business Plan
The Three Key Questions
The business plan needs to answer three straightforward questions:
1.	Where are we now?
2.	Where do we intend going?
3.	How do we get?
Where are we now?- An analysis of the current situation of the market place, the competition, the business concept and the people involved is a necessary first step. It will include any historical background relevant to the position to date.
Where do we intend going?-The direction that is intended for the business need to be clear and precise, if others are to share its vision for the future. As well as qualitative expression of the objectives, quantifiable targets will clarify and measure progress towards the intended goals. Identification of likely changes to the business environment will build on the opportunities outlined, and assess possible threats.
How do we get there? - Implementation of accepted aims is what all the parties to a plan are interested in as a final result. Plans for marketing and managing the business, with detailed financial analysis are the advisable preliminaries before putting it all into practice.

Outline of a Business Plan

Table of Contents					Page
Confidentiality Agreement
1)	Executive Summary
2)	Company Description
Promoters, shareholders and Board
Advisors
Products and services
Long Term Aim of Business
Objectives
S.W.O.T. Analysis
3)	Market Analysis
Target market
Total market valuation
Targeted share
Market trends
Profile of competitors
Competitive advantage
Benefits to clients
4)	Marketing/Sales Strategy
Income sources
Marketing strategy
Pricing
Advertising and Promotion
Sales Strategy
5)	Research & Development
Patents, copyrights and brands                                        
Product/Service Development                                         
R&D
6)	Staffing and Operations
Management Organisation Charts
Staffing
Training Plans
Operations
7)	Financial Projections
Key Assumptions
Profit and Loss Accounts
Balance Sheets
Cash flow Projections
8)	Sales channel
9)	Funding Requirements
10)	Appendices

Chapter four 
Legal Issues For Entrepreneurs
3.1 Need for a Lawyer
Any business in a country is regulated by law. The entrepreneur needs to be aware of regulations that affect the new venture. At different stages the entrepreneur will need legal advice. The legal expertise required will vary based on factors such as type of product and organizational category. The entrepreneur should carefully evaluate his or her needs before hiring a lawyer.

Legal Issues in Setting up the Organization
There are many options an entrepreneur can choose in setting up an organization. Legal advice is also needed to prepare the agreements necessary to begin a partnership, franchise, or corporation. 

What Is Intellectual Property?
Intellectual property which includes patents, trademarks, copyrights, and trade secrets represent important assets of entrepreneur and should be understood even before engaging the services of an attorney. 
Intellectual property refers to products that come from the creative mind. Intellectual property is imagination made real. Intellectual property is an asset just like your home, your car, or your bank account. 

Any Innovation, Commercial or Artistic, or any Unique Name, Symbol, Logo or Design is an Asset for the Entrepreneur.  It must be protected from Un-authorized use. There are four ways to protect these assets 1. Patents on Inventions 2. Trademarks on Branding Devices 3. Copyrights on Music, Videos, Patterns, Forms of Expression 4. Trade Secrets for Methods/Formulas with Economic Value

3.2 Patents 
A contract between government & inventor in exchange for disclosure of invention• grants the inventor exclusivity to make, use & sell the invention for  specified amount of time • territorial• holder obtains monopoly for certain period of time. 
•	Utility Patents: Protect Useful Processes, Machines, Articles of Manufacture, and Compositions of Matter. Some Examples: Fiber Optics, Computer Hardware etc 
•	Design Patents: Guards the Unauthorized Use of New, Original, and Ornamental designs for Articles of Manufacture. The look of an Athletic Shoe, a Bicycle Helmet, the Star Wars Characters are all protected by Design Patents. 
•	Plant Patents: Are the way we protect Invented or Discovered plant varieties. For Example: Hybrid Tea Roses, Silver Queen Corn, Better Boy Tomatoes are all types of plant patents. 
Utility, design, or plant patents protect inventions and improvements to existing inventions. Inventions must be "things that have purpose" and not ideas or names. For example, I would patent my invention of an improved car tire that never goes flat.
A patent grants inventors the right to exclude others from making, using, selling (or offering to sell) or importing their inventions throughout the country for a limited period of time. To obtain a patent, the inventor submits his or her application to the country’s Patent and Trademark Office. There are three categories of patents:
•	Utility patents are most commonly granted for the protection of new, useful, non-obvious and adequately specified processes, machines, compositions of matter, and articles of manufacture (or any new and useful genuine improvements thereof) 
•	Design patents are issued for new, original, decorative and non-obvious designs for articles of manufacture. 
•	Plant patents (used less frequently) are for certain new varieties of plants that have been asexually reproduced
Patent registrations cover inventions. When your company creates a new product or improves on an existing product, you may register that design with the country’s Patent and Trademark Office. 
3.3 Copyright Laws
A copyright protects the form of expression of a creator against copying. Literary, dramatic, musical and artistic works are included within the protection of the country’s copyright law.
It protects works of authorship, such as writings, music, and works of art that have been tangibly expressed. To stop others from printing, copying, or publishing. It does not protect idea itself, others can use idea/concept in a different manner• term of copyrights is the life of author plus 50 years & 75 years for an institute.
Copyrights cover original works including books, music, movies, sound recordings and choreographic works. Businesses that create and sell creative works use the copyright process to claim ownership. 
3.4 Trade Secrets 
Trade secrets are information that companies keep secret to give them an advantage over their competitors. Trade secrets unprotected by a patent, copyright, or trademark as no public disclosure has been made. 
3.5 Trademark Laws
Trademarks protect words, names, symbols, sounds, or colors that distinguish goods and services. Trademarks, unlike Patents, can be renewed FORVER as long as they are being used in business. A great trademark can help with the sales of goods and services and very desirable goods or services can make a trademark famous.
Trademark registration covers words, phrases, symbols and original designs used in commerce. Most companies federally register the business name, business logo, slogan and other product designs. 

3.6 Product Safety & Liability (legal responsibility) 
A Firm must not Breach any Legal Specifications of a Product under the country law. Pre-Assessment to check if the Product is Subject to any Regulations under country law. Entrepreneur must follow the Prescribed Specification to meet the country law’s requirement. 
Product Liability Claims Types: 1. Negligence: anywhere in Production & Marketing Process (Toyota/Pepsi) 2. Warranty (Assurance): Exaggerating the Benefits (Energy Drinks) 3. Strict Liability: Defective Products for Sale (Food) 4. Misrepresentation: material facts on Labels (Hidden Costs) 
3.6 Business Insurance
Insurance is the transfer of risk from the business owner to an insurance underwriter and allows business owners and providers of capital to businesses to, in essence, take on additional risk or pursue activities that, uninsured, might prove too uncertain to risk capital.

	It is a contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.	
It is a cover against any unexpected risk. Managing Risk in the New Business, Type of Insurance to Purchase depends upon the Nature of Business/Industry. For Example: – Staff Safety is more of concern in Chemical Industry than Banks – International Marketing Personnel/Sales Managers Travel more frequently than Financial Executives – Need Company’s Insurance Coverage 

2. Buying Insurance 
There are five variables to consider when purchasing insurance: (1) Price, (2) coverage offered, (3) specialization of insurance company, (4) reputation of the insurance underwriter, and (5) size of the deductible. 
1.	Price: 
2.	Coverage Offered: 
3.	Specialization of the Company: 
4.	Reputation of the Insurance Company: 

Chapter five
Institutional set up for the promotion of small scale industry 
Setting up a small business can be a lot of work, but with planning and dedication your business can be started smoothly. Take your time in setting up your small business and try writing your setup plans in a small notebook to keep as a reference. Organization is the key to setting up your business successfully. 

Office space
Choose adequate office space to set up your small business. If you chose to set up your business at home, be sure that the space is separate from areas that other family members may occupy. You also want the office space to be free from clutter. Also, be sure that the space has adequate lighting. If you chose to set up your small business in your home, be sure to request at your local clerk's office to see if any special business permits are required.
Office equipment 
Purchase the proper amount of office equipment to help your small business run smoothly. You will need items such as computers, file cabinets, paper office supplies and a business telephone. Be sure to set up a professional communication system for your customers. If you set up your office at home, this voicemail should be separate from your personal voicemail system. Purchase a desk and chairs that are comfortable. If your job duties involve prolonged sitting, you want to invest money in chairs that promote good back posture.

Checking account
Open a business checking account. Many banks offer specials to new business that will save you money on bank fees. They understand that it takes a new business time to generate revenue. You may also want to consider applying for a business credit card so that you can keep business purchases separate from personal purchases. Many banks offer a special rate on credit card interest rates if you open a checking account in addition to applying for a new credit card.
Business ledger
Locate a good accountant and purchase a ledger that enables you to keep good records. When you have finished setting up your small business and you begin business operations, be sure to keep receipts of purchases and sales. These are important and will be used when filing taxes. A good accountant can also help you get organized the first year of your business and teach you what small business deductions you may use on your taxes.
Financing the small scale industry
So you have developed a business idea that you know will be profitable, address the needs of a market eager for your product or service, and will make your dreams of being your own boss come true. Unfortunately, your venture is a small-scale business. This type of venture may need only 5,000 to 15,000 br to get off the ground, but no bank may lend such a small amount on a business loan. There are ways to finance your small-scale business.

Step 1
Write a business plan; despite the fact that your business is a small one, even if you are the only employee, you’ll still need a sound business plan that demonstrates that you know how you will operate and become profitable. Include management, marketing, operations and financial strategy in your business plan. Design your business plan as a guide to making your business a success. Offer insight on the potential risk and return a potential investor can expect from your enterprise.
Step 2
Contact the Small Business Administration (SBA) for information on the micro-lending program and a listing of micro-lenders, who will lend money to small-scale businesses through the SBA guaranteed micro-lending program. Visit the local SBA office or log onto the website to retrieve the program requirements and information on how to make a successful application.
Step 3
Contact a participating lender. Request an application form and any additional information they might be able to provide regarding the micro-loan process. Complete and submit the application; often, the lender will review and provide an answer regarding your application. Be prepared if the process takes longer. Respond immediately if the lender requests additional information or, on rare instances, requires you to list additional collateral to secure the loan.
Management concepts
Definition 
“Management is a social process entailing responsibility for the effective and economical planning and regulation of the operations of an enterprise, in fulfilment of a given purpose or task.” E. F. L. Brech
“It is multipurpose organ that manages the business and manages managers and manages workers and work”. P. F. Drucker
“The job of management is to create and maintain an environment in which individuals can work together to accomplish group goals.” Koontz and O’Donnel
“Management is a process by which a cooperative group directs action towards a common goal”. Joseph Massie
“Management is the art of securing maximum result with a minimum effort so as to secure maximum prosperity and happiness both for employer and employees and give the public the best possible services”. John Mee
Features of Management
From the above definitions we will be able to identify the basic features of management which are given below:  
•	Management implies group effort for achieving common goal.  It is a means to an end and not an end in itself.  In other words it is goal oriented. 
•	It entails responsibility of planning and effective and economical use of resources. 
•	It is a problem solving effort.  For combating the problem it has to make decisions.  Thus it is a problem solving and decision making effort. 
•	It is a process consisting of planning, organisation, direction and controlling.  It should not be confused with people such as owners or managers.  Whoever performs the above function constitute the management. 
•	It is a system of authority thereby getting things done through and by others. 
•	It is intangible and remains as an unseen force.  The presence of efficient management is evidenced by the results achieved. 
•	It is scientific and is based on universally applicable principles, applicable to all situations and types of organisation. 
•	It is an Art as well as Science.  The skills for management can be acquired by means of scientific study.  It is also based on certain inborn qualities needed for management such as leadership and decision making abilities. 

Managing business ventures
Venture management is a business management discipline which is focused on the skills and practices required to manage the rapid growth of new business in highly dynamic environments. These environments are often characterized by rapid technology change. Venture management techniques apply equally well to venture capital-funded firms, self-financed firms, and new ventures that are managed with a large degree of independence within a large established firm.
Functions of management
Planning 
It is the basic function of management.  It implies forecasting the future, predetermining the activities to be performed and prescribing the means and methods of achieving the activities planned.  It involves setting objectives, policies and programmes and making decision to achieve them. 

Organising 
It is concerned with determining the activities needed to achieve the objectives, dividing and distributing the work and delegating it among groups and persons.  It also determines the responsibilities of people and the inter-relationship among them.  It implies splitting of the major activities into components, grouping and assigning them to individuals and groups. 

Staffing
Staffing involves manning the positions created in the organizational structure. It involves the estimation of manpower needs for each job, appraising and selecting candidates, training and development.  Staffing function is generally confined to managerial manpower. Certain authors prefer to treat staffing as a part of the organizing function.

Directing
Directing involves guiding and leading the subordinates. By direction subordinates are oriented to the organizational objectives; and are motivated towards improved performance. Simply it is this function, which puts the group into action and encourage them to work with zeal and enthusiasm.
Coordinating
Coordinating involves the effort to ensure that all groups and persons work together harmoniously, efficiently and economically towards the common objectives. Some authors consider this as the essence of management, prevalent in all functions and do not consider as an element.
Controlling
Controlling ensures that performance according to pre-determined standards and plans. It implies measurement of performance, comparison of performance with the standard set and corrective action to rectify discrepancies and to overcome hindrances, if any in carrying out the plan.

Major functional areas of management
1.	Marketing management 
Marketing management is a business discipline which focuses on the practical application of marketing techniques and the management of a firm's marketing resources and activities. Marketing anagement is the planning and implementation of a company's production, pricing, distribution and promotional strategies. The specific marketing techniques used in this management discipline depend on the size of the business and budget as well as the industry. The basic process, which is usually overseen by a marketing manager, involves analysis, planning, project management, leadership and follow through.
Sufficient research of who the target market is, as well as what it needs and desires, is essential in this type of strategic management. The marketing manager must analyze this information to aid in his or her planning stages. The implementation of all of his or her strategies must fit in with the marketing goals of the business and the resources available. Marketing management techniques rely heavily on predictive analysis; the manager must determine the results that are likely to occur for each strategy he or she uses. 
The strategies for each product launch or other campaign must then be formed into a plan. The plan must be within the company's budget for all resources, including advertising materials and employees. What is widely known as the "4 P's of Marketing" — product, price, place and promotion — are thoroughly included in the manager's plan. Marketing management planning specifies detailed tasks and time lines for each project.
Both internal and external resources are often used to manage marketing campaigns. The company or agency's own employees and equipment are internal, while outsourced workers as well as materials are considered external. All marketing management efforts must be kept track of and archived in case any complaint or legal problem does arise.

2.	Financial management
FM is the planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization.
Financial management means:
-	To collect finance for the company at a low cost and
-	To use this collected finance for earning maximum profits.
Thus, financial management means to plan and control the finance of the company. It is done to achieve the objectives of the company.
"Financial management is concerned with raising financial resources and their effective utilization towards achieving the organizational goals."
Financial Management means the efficient and effective management of money (funds) in such a manner as to accomplish the objectives of the organization. It is the specialized function directly associated with the top management. Not only about long term budgeting but also how to allocate the short term resources like current assets. It also deals with the dividend policies of the share holders.
3.	Human resource management
It is the process of hiring and developing employees so that they become more valuable to the organization.
Human Resource Management includes conducting job analyses, planning personnel needs, recruiting the right people for the job, orienting and training, managing wages and salaries, providing benefits and incentives, evaluating performance, resolving disputes, and communicating with all employees at all levels. Examples of core qualities of HR management are extensive knowledge of the industry, leadership, and effective negotiation skills. Formerly called personnel management.
Human resource management (HRM, or simply HR) is a function in organizations designed to maximize employee performance in service of their employer’s strategic objectives. HR is primarily concerned with how people are managed within organizations, focusing on policies and systems. HR departments and units in organizations are typically responsible for a number of activities, including employee recruitment, training and development, performance appraisal, and rewarding (e.g., managing pay and benefit systems). HR is also concerned with industrial relations, that is, the balancing of organizational practices with regulations arising from collective bargaining and governmental laws. 
4.	Production management
Production management is the job of coordinating and controlling the activities required to make a product, typically involving effective control of scheduling, cost, performance, quality, and waste requirements. It means planning, organizing, directing and controlling of production activities.

Production management deals with converting raw materials into finished goods or products. It brings together the 6M's i.e. men, money, machines, materials, methods and markets to satisfy the wants of the people.
Production management also deals with decision-making regarding the quality, quantity, cost, etc., of production. It applies management principles to production.
Production management is a part of business management. It is also called "Production Function". The main objective of production management is to produce goods and services of the right quality, right quantity, at the right time and at minimum cost. It also tries to improve the efficiency. An efficient organisation can face competition effectively. Production management ensures full or optimum utilization of available production capacity.
"Production management deals with decision-making related to production processes so that the resulting goods or service is produced according to specification, in the amount and by the schedule demanded and at minimum cost."
The importance of production management to the business firm:
1.	Accomplishment of firm's objectives: Production management helps the business firm to achieve all its objectives. It produces products, which satisfy the customers' needs and wants. So, the firm will increase its sales. This will help it to achieve its objectives.
2.	Reputation, Goodwill and Image: Production management helps the firm to satisfy its customers. This increases the firm’s reputation, goodwill and image. A good image helps the firm to expand and grow.
3.	Helps to introduce new products: Production management helps to introduce new products in the market. It conducts Research and development (R&D). This helps the firm to develop newer and better quality products. These products are successful in the market because they give full satisfaction to the customers.
4.	Supports other functional areas: Production management supports other functional areas in an organisation, such as marketing, finance, and personnel. The marketing department will find it easier to sell good-quality products, and the finance department will get more funds due to increase in sales. It will also get more loans and share capital for expansion and modernization. The personnel department will be able to manage the human resources effectively due to the better performance of the production department.
5.	Helps to face competition: Production management helps the firm to face competition in the market. This is because production management produces products of right quantity, right quality, right price and at the right time. These products are delivered to the customers as per their requirements.
6.	Optimum utilization of resources: Production management facilitates optimum utilization of resources such as manpower, machines, etc. So, the firm can meet its capacity utilization objective. This will bring higher returns to the organisation.
7.	Minimizes cost of production: Production management helps to minimize the cost of production. It tries to maximize the output and minimize the inputs. This helps the firm to achieve its cost reduction and efficiency objective.
8.	Expansion of the firm: The Production management helps the firm to expand and grow. This is because it tries to improve quality and reduce costs. This helps the firm to earn higher profits. These profits help the firm to expand and grow.

Chapter Seven
Forms of Business Ownership

4.1.	Types of business ownership
Various legal forms of business organizations are available to organize small businesses.  There are forms currently in wide use by business.  Their forms are shown in the following figure as 
1.	Sole proprietorship
2.	Partnership
3.	Corporations.
4.	Cooperatives 
1.	The Sole proprietorship Option
The proprietorship is a business owned by just one person although it may have many employees.  It is the easiest form of business to start with limited funds. The individual proprietor has title to all business assets, subject to the claims of creditors.  He/she receives all profits but must also assume all losses, bear all risks, and pay all debts of the business.  The proprietorship is the simplest and cheapest way to start operation and is frequently the most appropriate form for a new business.  In the proprietorship, the owner is free from interference by partners, shareholders, directors, and officers.

Advantages of sole proprietorship
a.	Easy and low cost of formation and dissolution: the financial investment need not be large, and the legal red tape is minimal. Furthermore, except in those cases where license is required such as for establishing barber, restaurant, opening a bar, there are no restrictions on either starting or terminating small business operations. 
b.	Ownership of all profits and personal incentives: all the profits belong to the proprietor. It is who faces the loss and this gives great incentive to the owner to take personal care and manage it effectively and efficiently.
c.	Freedom and quickness of action: the sole proctorship is not blocked by making decisions; he/she can take his/her own decisions because he/she has full authority over his/her firm.  
d.	Business secrecy: it is easy to maintain the secrecy of the business since confidential information is one of the factors which brings success and it is much more safe that other types of business.
e.	Social desirability: the sole proprietorship is desirable as it ensure that too much wealth doesn’t concentrate on few hands. It may be one of the ways in which equitable distribution of wealth is ensured 
f.	Pride of ownership: people who own and manage their own business are rightfully proud of their work.
g.	Single tax or tax break: all the profits of the sole proprietor are taxes as the personal income of the owner, and he/she pays the normal income tax on that money.

Disadvantages of sole proprietorship
The proprietorship lacks some of the advantages of other legal forms.
a.	Unlimited liability: the risk of losses: the sole proprietor will be legally liable for all the debts of the business. At times of loss and bankruptcy if the business asset is not sufficient to satisfy the obligation or settle debts of the creditors, his personal and real property may be required to pay off. i.e. the owner’s personal asset outside the business can be taken by creditors if the business fails.  
b.	Limited financial resources: funds available to business are limited to the funds the one or the sole owner can gather.
c.	Limitations in managerial ability and other special skills: operating a business requires planning, organizing, controlling, marketing, financial, motivational and customer relation skills. Rarely does an individual have this range of needed expertise. This makes the possibility of solving the problems difficult for one person in such form of a business specially where the organization is large and complex that demands different expertise knowledge. 
d.	Lack of continuity: this kind of business suffers from uncertain future which means there is lack of stability or lack of continuity. Death, illness, bankruptcy or retirement of the owner terminates the proprietorship. The death of an owner terminates the legal existence of a business that is organized as a sole proprietorship. The possibility of the owner's death may cloud relationships between the business and its creditors and employees. Another contingency that must be provided for is the possible incapacity of the proprietor.  If he/she was badly hurt in an accident and unconscious for an extended period, the business could be ruined.
e.	Demands time commitment: It is hard to own business, manage it, train people and have time in everything else in life. The owner must spend long hours in managing the business.
f.	Difficulty in hiring and keeping high achievement employees: a good employee of the business may quit because there is no opportunity to obtain an ownership interest on it.
g.	Few fringe benefits: if you are your own boss you loss many of other fringe benefits that come from working for others.  

2.  The Partnership Option
A partnership is a business run by two or more persons where their relationship is based on agreement participating in the profits and losses arising out of it. A partnership is a voluntary “association of two or more persons that carry on, as co-owners, a business for profit.”  Because of its voluntary nature, a partnership can be quickly set up without many of the legal procedures involved in creating a corporation.  A partnership pools the managerial talents and capital of those joining together as business partners.

a.	Formation
This form of business requires the existence of two or more persons entering into contractual relationships. The agreement between the parties is desirable to be written and signed, to prevent misunderstanding among the parties. This contract is called memorandum of association, article of partnership or partnership contract. Partner’s rights and duties should be explicitly in written articles of partnership. The memorandum of association lies down the terms and conditions of partnership and the rights, duties and obligations of partners according to the 1960 commercial code of Ethiopia article 284, the memorandum of association containing the following. These articles should be drawn up during the pre-operating period and should cover the following items as a minimum:
1.	 	Date of information of the partnership.  
2.	 	The name, address and nationality of each partner.
3.	 	Statement of fact of partnership.
4.	 	Statement of business purposes(s).
5.	     The contribution of each partner, their value and their method of valuation 
6.	     The services required from persons contributing skills
7.	 	Duration of the business. (The period of time for which the partnership has been             established)
8.	 	Name and location of business.
9.	 	Amount invested by each partner.
10.	 	Sharing ratio for profits and losses and the agreed procedure for allocation
11.	     The managers and agents of the firm
12.	 	Partners’ rights, if any for withdrawals of funds for personal use.
13.	 	Provision for accounting records and their accessibility to partners.
14.	 	Specific duties of each partner.
15.	 	Provision for dissolution and for sharing the net assets.
16.		Provision for protection of surviving partners, decedent’s estate, and so forth. 
Unless specified otherwise in the articles, a partner is generally recognized as having certain implicit rights.  For example, partners share profits or losses equally if they have not agreed on a profit-and-loss sharing ratio.
In a partnership each partner has agency-power, which means that a partner can bind all members of the firm.  Good faith, together with reasonable care in the exercise of management duties, is required of all partners in a business.

b.	Qualifications of Partners
Any person capable of contracting may legally become a business partner.  

c.	Capital contribution
Every partner shall make contribution, which may be in the form of money, receivables, property or skill. Any person capable of contracting may legally become a business partner.

d.	Management
Partners can make an agreement how to share the responsibility among themselves according to their experience and knowledge. If there is no agreement to the pattern of managing the business, every partner has the right to take active part in the management of the business affairs. 

e.	Duration
Legally a partnership comes to an end or terminates for various reasons. It is terminated when any of the general partners withdraws, dies or becomes no longer to be a partner. However, if the remaining partners agree to continue under the original name of the firm and style, they can continue after settling the claim of the outgoing partner. The partnership can be dissolved prior to the expiry of the term when they agree to terminate. 

f.	Other Legal Characters
Unlimited Liability
As the sole proprietorship, in a partnership each partner is personally liable for the obligations of the business. Furthermore, if one partner’s decision costs the company money, it affects all the other partners, who may have to pay losses out of their personal assets. The liability of the firm is unlimited in respect to its debts. The liability of the partners is joint, several and full in the sense that the creditors can recover their dues from the property of any or all partners in case the assets of the firm are insufficient to cover.

Greatest good faith
A partnership agreement is based on mutual confidence and trust of the partners. The parties must, therefore, be just and honest to other partners. They must disclose all the facts and render true accounts to the business of the firm and not make any secrete profits. They should not be deceptive.

No Separate Entity
There should not be any independent legal existence apart from the persons who constitute it. In the eye of law, like sole proprietorship, there is no distinction between the partners and the firm; they are one and the same.

Restriction on transfer of interest
 A partner cannot transfer his share or give his ownership to outsiders without the consent of other partners.

Agreement of consent: No change may be made in the nature of business and no partner can act out of the specified way or make major and special decision without the consent or agreement of all partners.

Advantage of partnership
Like the sole proprietorship, the partnership has both advantage and disadvantage. Any person considering a partnership should carefully weigh each of the following advantages and disadvantages.
a.	Ease of starting: Since it involves a private contractual arrangement, a partnership is fairly easy to start. The cost of starting a partnership is low; it usually involves only a modest legal fee for drawing up a written agreement, which is highly desirable. The initial expenses are less and the legal formalities are comparatively simple and in expensive. An oral agreement is sufficient but not recommended.
b.	Increased sources of capital credit: The partnership offers numerous sources of capital. First there is the direct contribution from the partners themselves. Second there are the loans that friends, investors, and lending institutions are willing to make. Third, there is the credit that suppliers will extend. As the partners increase in number, especially if they are general partners, it is likely that the business will be able to raise more capital and have the credit line extended. Thus, because a partnership can   offer creditors less risk than a sole proprietorship, it is often an attractive investment.
c.	Combined managerial skills (improved decision making potential): A partnership is likely to be operated more efficiently than a proprietorship because two or more persons share in the management and there is a good chance that a partnership will make better decisions. After all, with two or more people contributing their ideas to the solving of problems, superior solutions should be forthcoming. This is true if the partners are specialists in different areas. For example, one might be the individual who thinks up new ideas and services to provide to customers, a second might know a great deal about personal selling, and a third might be an accountant.
d.	Personal supervision: Because of their financial responsibilities, the partners will take a greater interest in the business than they would take if they were only employees.
e.	Shared risk: The losses incurred by the firm will be shared by all partners and hence the share of loss of each partner will be less than in case of sole proprietorship.

Disadvantages of partnership
a.	Unlimited liability: If the assets of the partnership are not sufficient to meet the obligations, creditors may choose to sue any or all the partners to satisfy the debts. Hence, this poses a serious handicap for the individual partner with large personal asset as he/she may be obliged to repay from his personal asset and claim later.
b.	Risk of implied authority: Each partner is bound by the partnership contracts made by any partner if such contracts apply to the ordinary operations of the business. The fault and misjudgment made by a single partner binds the firm and the remaining partners. Thus, they are liable for the debts made by the partner.
c.	Lack of harmony: There is always a danger of disagreement among partners. As every partner has equal voice in the management, everyone would try to assert (declare) his position, try to promote his personal interests and this may lead to internal frictions and misunderstandings.                    
d.	Lack of continuity (instability): If any one of the general partners dies, withdraws or becomes mentally or physically incapacitated (injured), the partnership end. As the number of partners increases, the likelihood of one of these events occurring becomes greater.

3. The corporation option
The corporations have emerged and grown to overcome the shortcoming of the proprietorship and partnership and meet the increased need of modern and large scale industry and commerce.
The most widely quoted definition for Joint Stock Company or corporation is given as an artificial person, authorized and recognized by law, with distinctive name, a common seal, comprising of transferable shares of fixed values, carrying limited liability and having a perpetual or continued or uninterrupted succession life.

The Corporate Charter
A corporation charter typically provides for the following:
•	Name of the company
•	Formal statement of its formation
•	Purposes and powers- that is, type of business
•	Location of principal office in the state of incorporation
•	Number and value of shares.
•	Voting privileges of each share 
•	Names and addresses of incorporators and first year’s directors.
•	Names and addresses of, and amounts subscribed by, each subscribe to capital stock.
•	Statement of limited liability of stockholders 
Characteristics of corporations
a.	Separate legal entity: The definition of corporation given above begins by asserting that a company is artificial person. This indicates that, on the one hand it is not natural person or physical person like a human being. On the other hand though it is not a natural person, having existence in the eyes of low and considered as an artificial person created by low, have many of the rights of the natural person. Among them, to own and transfer property, to sue and to be sued in count, enter into contracts by its own name, to manage its own affairs, to borrow money. A charter is the official document giving power to run a corporation. It is often called a certificate of incorporation.
b.	Limited liability: Since the corporation has separate legal entity its debts are its own. The assets and liabilities, rights and obligations incidental to the company’s activities are assets and liabilities, rights and obligation respectively of the company and not of its members. Shareholders are liable to the extent that they have invested money in the corporation. Unlike the previous forms, they are not liable of the debts of the corporation beyond their investments, their personal assets cannot be seized to pay the debts of the corporation beyond their investments, and their personal assets cannot be seized to pay the debts of the corporation. 
c.	Transferability of shares:  It is easy to transfer ownership in a corporation. A stockholder may sell stock to another person and transfer the membership and membership interest freely without consulting other stockholders. When shares are transferred, the transfer of ownership is indicted (charged) in the records of the corporation.
d.	Death and withdrawal of shareholders: In large corporations, stock is being exchanged constantly without noticeable effect up on the operation of business. In small firms, however, the change of owners, though legally just as simple, may produce numerous complications. To illustrate, suppose that two of the three equal shareholders in a business for one reason or another sold their stock to an outsider. The remaining stockholder would then be at the mercy of the outsider, who might decide to remove the former from any managerial post he/she happened to hold.
e.	Common seal: A corporation has a common seal with the name of the company engraved on it, which is used as a substitute for its signature though it acts though its agents.
f.	Separation of ownership from management: The stockholders who own the capital are kind of absent owners who are engaged in their respective other personal work while holding shares of the company. A company cannot, as an artificial person, manage itself. It must therefore have managers, or directors. Directors are persons to whom management of a company is entrusted. Directors may be appointed and removed by the majority vote of the shareholders. The company is free to hire any employee it can afford and is thus able to get the specialized professional skill needed for sound management.
The various decision makers that are important in the actual management of the corporation are:

1. Stockholders
They are the owners of the corporation. A stockholder is any person who owns at least one share in a corporation. The stockholders are the people who actually own the corporation with limited liability. The liability for the losses of the corporation belongs to the stockholder only to the extent of his/her individual investment. Stockholders are not responsible for debts incurred by the corporation.
It might seem logical that stockholders would also be actively involved in the management of the firm. However, this is seldom the case, especially for large corporations. Stockholders virtually never take an active role in the company.
They buy and sell stock, and they may vote on major issues at the annual meeting. They also elect the members of the board of directors. Others than these token tasks, stockholders do not make decisions for the company. In smaller corporations, stockholders may play a role in managing the firm, but this is because they are usually key managers or family members, not because they are stockholders.

2. Board of director
The board of directors is elected by the stockholders to oversee the management of the firm. The board of directors is essentially the management body for the corporation. Responsibilities of the board of the directors include establishing all business policies and approving major contracts and undertakings. In addition, the board may also elect the president.
Ordinary business practices of the corporation are carried out by the officers and employees under the directives and supervision of these directors. The actual role the board members play depends on the company, particularly the size of the company.
In small corporations, the directors may be the owners of the firm, and they may be active in day to day management. In larger, publicly held companies, the directors perform a strategic role of helping top managers determine the overall direction of the company. However it is the top managers who make most key decisions.
Boards of directors often meet monthly or quarterly. The members of the board could be inside directors or outside directors. Outside directors are not employed by the company and often are active or retired executives of other large but none computing businesses.
Regardless of the size of the company or the size of the board, the decisions it makes are of strategic importance. These decisions will affect the direction of the firm, its culture, and its goals. These decisions will be implemented at lower levels in the firm, but their impact is significant.
In fact, some critics believe that boards of directors should take a more active role in the oversight of the companies.

3. Corporate officers/Managers/Executives
Ordinary business practices of the corporation are carried out by the officers and employees under the directives and supervision of the board of directors. Top management refers to the officers of the corporation who make major decisions for the company and are responsible for the company’s performance.
The number of positions depends on the size of the firm. For example, a small business may have only one person in top management-the owner, who is typically the president.
Advantages of a corporation

a.	Financial strength: Corporations can raise additional funds through the sale of stocks. By selling shares of stock, the company can obtain large amount of money from different stockholder. Because corporations are regulated closely, people usually invest more willingly than in proprietorships and partnerships.
b.	Limited personal liability: Shareholders have limited liability for the corporation’s debts or judgments against the corporations. Generally, shareholders can only be held accountable for their investment in stock of the company.
c.	Scope of Expansion: Corporations have better chance of expanding rapidly because of better financial and human resources.
d.	Better Decision Making: Corporations have efficient people to assist in its operations in the role of directors and managers. It is having a larger talent pool because it is able to attract talented people as it is able to pay higher salaries and also people are attracted by its form of ownership.
e.	Easy Transfer of shares/ownership: A stockholder can sell his stock/shares in the corporation at any time to anybody without taking the consent of the other shareholders or the corporation.
f.	Separate Legal Entity: A corporation is a legal entity created under the law that is independent of any single individual. Its assets and liabilities are distinct from those of owners of the corporation. A corporation continues to exist despite the retirement or death of any of its stockholders.
Disadvantages of a corporation

a.	Difficulty in formation: The process of incorporation requires more time and money than other forms of organization.
b.	Lack of Owner’s Personal Interest: This may lead to a stage where the corporation may not be able to reach its full potential as the directors or officers who have been given the task of operating the business may not show the same interest as that of owners.
c.	Slow Decision Making: There are many decision makers and some of these decisions have to be consented by the top management, board of directors, and ultimately stockholders. This leads to slow decision making.
d.	Lack of Secrecy: Corporations have to provide much information about their operations on a regular basis to different organization.
e.	Double taxation: Incorporating may result in higher overall taxes. The income is taxed twice: from the company and from dividends paid to shareholders.
4. Cooperatives option

Cooperative: Definition 
A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. 
Proprietorships, partnerships and corporations are the most popular forms of business organization.  There is yet another form of organization that is small in number but which serves a very useful purpose.  This particular type of business is called cooperative (co-op) and is somewhat like a corporation. A cooperative is a business owned and operated by its user-members for the purpose of supplying themselves with goods and services.  It is an organization owned by members/customers who pay an annual membership fee and share in any profits (if it is profit making organization).   Owners, managers, workers and customers are all the same people.
These cooperatives are formed to give members more economic power as a group than they would have as individuals.  The best example of such cooperatives is a farm cooperative.  The idea at first was for farmers, to join together to get better prices for their food products.  
A cooperative is an enterprise owned and controlled by all those who work in it.  It can register and have limited liability for its members, but has to adopt the following principles: 
-	members have an equal vote in decisions;
-	membership is open to everyone who fulfills specified conditions (e.g. number of hours worked); 
-	assets controlled, and usually owned jointly by members; 
-	Profit shared equally between members with limited interest payable on loans made by members; 
-	Share capital remains at its original value- member’s benefit from participation, not investment. 

Values: Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity.  In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility, and caring for others. 

Three principles distinguish cooperatives from general corporations: 
•	User-owner, 
•	User-control, and 
•	User-benefits. 
The user-owner principle means the people who use the cooperative own and finance the business. Cooperatives are financed by members purchasing stock, paying membership fees, or accepting self-imposed assessment on products purchased and/or sold or fees for services. In some cooperatives, members reinvest their earnings (profits) to capitalize the business. 
User-control stems from the majority of the customers being members who are also responsible for selecting the member of the board of directors. As representatives of the members, the directors are responsible for setting policy and providing oversight on all the cooperative's business practices. 
User-benefits explain that the cooperative's primary purpose is to provide and distribute benefits to members. Distribution of these benefits is based on members’ use of the cooperative, not on the amount of capital they have invested. Benefits also include providing market access, providing needed services, or supplying "best-value" products. 
A cooperative is thus a user owned and controlled business in which benefits are distributed according to a member's use of the association.

Guiding Principles of Co-operative Societies
1.	Co-operative societies are voluntary organizations open to all persons able to use their services and willing to accept the responsibilities of membership without gender, social, racial (ethnic), political or religious discrimination. 
2.	Co-operative societies are democratic organizations controlled by their members who actively participate in setting their policies and making decisions. Every member has equal voting rights and accordingly one member shall have one vote. 
3.	Members shall receive dividends from profit according to their shares and contribution after deducting and setting aside an amount necessary for reserve and social services. 
4.	Co-operative societies are autonomous self help organizations controlled by their members. If they enter into agreement with other organizations, including governments or raise capital from external sources, they shall do so on terms that ensure democratic control by their members and maintain their autonomy. 
5.	Co-operative societies provide education and training for their members, elected representatives, managers and employees so as to enable them to contribute effectively to the development of their societies. They inform the general public, particularly the youth about the nature and benefit of societies. 
6.	Co-operative societies serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures. 
7.	Co-operative societies work for the sustainable development of their communities through policies approved by their members.
4.2.	Criteria for Choosing the Ownership Form

It should be apparent by now that it is not easy to choose the best form of ownership.  A number of criteria must be considered and some tradeoffs are necessary.  In examining the criteria, it is better to consider the following issues.

1.	Organizational costs 
The initial organizational costs increase as the formality of the organization increases.  That is, sole proprietorships are typically less expensive to form than partnerships, and partnerships are usually less expensive to create than the corporation.  However, this consideration is of minimum importance in the long term. 

2.	Limited versus unlimited liability
The sole proprietorship and the general partnership have the inherent disadvantage of unlimited liability.  For these organizations, there is no distinction between business assets and the owner’s personal assets.  The creditors lending money to the business can require the owners to sell personal assets if the firm is financially unable to repay its loans. In contrast, both the limited partnership and the corporation limit the owner’s liability to his/her investment in the company.  

3.	Continuity
The sole proprietorship is immediately dissolved upon the owner’s death.  Likewise, the general partnership is terminated upon the death or withdrawal of a partner unless stated otherwise in the partnership agreement.  The corporation on the other hand, offers the greatest degree of continuity.  The status of the investor doesn’t affect the corporation’s existence.

4.	Transferability of ownership
The ability to transfer ownership between persons is intrinsically neither good nor bad.  Its desirability depends largely on the owners’ preferences.  In certain businesses, the owners may want the option to evaluate any prospective new investors. In other circumstances, unrestricted transferability may be preferred. 

5.	Control 
The sole proprietor has absolute control of the firm.  Control within the general partnership is normally based on the majority vote.  An increase in the number of partners reduces each partner’s voice in management.  Within the corporation, the control factor has two dimensions: 
1.	The formal control vested in the stockholders having the majority of the voting common shares, and
2.	The functional control exercised by the corporate officers in conducting the daily operations.  
For the small corporation, these two controls usually rest in the same individuals.  

6.	Raising new equity capital
The corporation has a distinct advantage in raising new equity capital, owing to the ease of transferring ownership through the sale of common shares and the flexibility in dividing the shares.  In contrast, the unlimited liabilities of the sole proprietorship and the general partnership deter raising equity capital from new investors.  Between these extremes, the limited partnership does provide limited liability for the limited partners.  This feature has a tendency to attract wealthy investors.  

7.	Income taxes
Income taxes frequently have a major effect on an owner’s selection of a legal business form. The sole proprietorship and partnership are not taxed as separate entities; the owners report business profit on their personal tax returns.  The earnings from the company are taxable to the owner, regardless of whether these profits have been paid out to the owner.  On the other hand, the corporation is taxed as a separate and distinct entity.  The corporation income is taxed again if and when it is distributed to the shareholder in the form of dividends.
The foregoing factors represent the main considerations in selecting a form of ownership. However, the relationship between income taxes and legal form of ownership make it an especially important factor in choosing the legal form of ownership.

Practice questions: 

•	When are the situations during which we need to use and implement a business plan 
•	Write the conditions required for successful innovation 
•	Write the meaning of small business 
•	Write the meaning of entrepreneurship 
•	Write the meaning of illumination in a process of idea creation
•	Write any four of the Entrepreneurial Traits and Characteristics
•	Write any two importance of entrepreneurship 
•	Write the meaning of incubation in a process of idea creation