ENTREPRENEURSHIP MANUAL

UNIVERSITY OF DAR ES SALAAM COMPUTING CENTRE
Diploma in Business Information Technology BIT 05208- ENTREPRENEURSHIP STUDENT MANUAL By: Prepared by Mujuni A; University of DSM Computing Centre (UCC)

By Prepared by Mujuni A., University of DSM Computing Centre (UCC)
© 2008 University Computing Centre Ltd
University Road P.O Box 35062 Dar Es Salaam Tanzania Tel: +255 (22) 2410645 Fax: +255 (22) 2410690 Email: training@udsm.ac.tz Website: http://www.ucc.co.tz All trademarks acknowledged. E&OE. © University Computing Centre Ltd. No part of this document may be copied without written permission from University Computing Centre unless produced under the terms of a courseware site license agreement with University Computing Centre. All reasonable precautions have been taken in the preparation of this manual, including both technical and non-technical proofing. University Computing Centre Ltd and all staff assume no responsibility for any errors or omissions. No warranties are made, expressed or implied with regard to these notes. University Computing Centre Ltd shall not be responsible for any direct, incidental or consequential damages arising from the use of any material contained in this manual. If you find any errors in this training manual, please inform University Computing Centre ltd. Whilst every effort is made to eradicate typing or technical mistakes, we apologise for any errors you may detect. Manuals are updated on a regular basis, so your feedback is both valued by us and will help us to maintain the highest possible standards.

By Mujuni, A, University of DSM Computing Centre (UCC)
1. CHAPTER ONE: INTRODUCTION –ENTREPRENEIURSHIP
1.0 Historical background The word “entrepreneur” originates from a thirteenth-century French verb, entreprendre, meaning “to do something” or “to undertake.” By the sixteenth century, the noun form, entrepreneur, was being used to refer to someone who undertakes a business venture. The first academic use of the word by an economist was likely in 1730 by Richard Cantillon, who identified the willingness to bear the personal financial risk of a business venture as the defining characteristic of an entrepreneur.
In the early 1800s, economists Jean-Baptiste Say and John Stuart Mill further popularized the academic usage of the word “entrepreneur.” Say stressed the role of the entrepreneur in creating value by moving resources out of less productive areas and into more productive ones. Mill used the term “entrepreneur” in his popular 1848 book, Principles of Political Economy, to refer to a person who assumes both the risk and the management of a business. In this manner, Mill provided a clearer distinction than Cantillon between an entrepreneur and other business owners (such as shareholders of a corporation) who assume financial risk but do not actively participate in the day-today operations or management of the firm. 1.1: What is entrepreneurship?  Entrepreneurship is a broad term and does not have a single definite definition.  It can be defined as the capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit. The most obvious example of entrepreneurship is the starting of new businesses.
 It can also be broadly defined as a way of thinking, reasoning, and acting that results in the creation, enhancement, realization, and renewal of value for an individual, group, organization, society.

By Mujuni A., University of DSM Computing Centre (UCC)
2
 In economics, entrepreneurship combined with land, labor, natural resources and capital can produce profit. Entrepreneurial spirit is characterized by innovation and risk-taking, and is an essential part of a nation's ability to succeed in an ever changing and increasingly competitive global marketplace.
 Entrepreneurship is a dynamic process of creating incremental wealth. The wealth is created by individuals who assume the major risks in terms of equity, time and career commitment or provide value for some product or service. 1.2 Who is an entrepreneur?  An entrepreneur is someone who exercises initiative by organizing a venture to take benefit of an opportunity and, as the decision maker, decides what, how, and how much of a good or service will be produced.
 An entrepreneur is different from a business man who buys and sells good and services for profit. Not all business men are necessarily entrepreneurs.
 An entrepreneur is someone who organizes, manages, and assumes the risks of a business or enterprise. An entrepreneur is an agent of change. Entrepreneurship is the process of discovering new ways of combining resources. When the market value generated by this new combination of resources is greater than the market value these resources can generate elsewhere individually or in some other combination, the entrepreneur makes a profit. An entrepreneur who takes the resources necessary to produce a pair of jeans that can be sold for thirty thousand shillings and instead turns them into a denim backpack that sells for fifty thousand shillings will earn a profit by increasing the value those resources create. This comparison is possible because in competitive resource markets, an entrepreneur‟s costs of production are determined by the prices required to bid the necessary resources away from alternative uses.

3
 Entrepreneurs are found in all professions-education, medicine, research, law, architecture, engineering, social work, distribution and the government.
1.3 What is intrapreneurship? Practice of entrepreneurship in an established firm. Intrapreneurship applies the 'start up' style of management (characterized by flexibility, innovation, and risk taking) to a secure and stable firm. The objective is to fast track product development (by circumventing the bureaucracy) to take advantage of a new opportunity or to assess feasibility of a new process or design.
1.4 : Are Entrepreneurs born or made?
 Nurture or nature?
 Entrepreneurship researchers point to two major contentions. There are those who argue that entrepreneurship is a function of individual personality traits. That there exist a number of recognizable behaviors, and attributes that are commonly associated with the “enterprising” person, and which may further distinguish between entrepreneurs and non-entrepreneurs or between successful entrepreneurs and unsuccessful enterpreneurs. These are innovativeness, creativeness, proactive ness, need for achievement, risk taking independence. Etc.
 On the other hand, those in the second strand, argue that entrepreneurship is an environmentally determined phenomenon. That the display of enterprising behaviors and attitudes will be stimulated or otherwise, by different environments.
1.5 Conclusions
There is now an overwhelming literature, (including proponents of the trait approach) that point to the common conclusion, and to which we also subscribe to, that entrepreneurship is not a biological trait. More specifically, entrepreneurs can be developed and that even the much advocated entrepreneurial traits and behaviors such as need for achievement and risk-taking can be learnt. That the mix and degree of enterprising attributes will vary between persons, but more importantly the enterprising behavior can be developed by exposure to stimuli and therefore can be learned.

4
2.0: GENERAL ENTREPRISING TENDENCIES/TRAITS [GETS]
Generally, an entrepreneur possess the following Traits/behaviors 2.1: Creativity behavior/skills
 Creativity is defined as the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others, and entertaining ourselves and others (Robert E. Franken, Human Motivation)
 Creativity is generating new ideas and concepts, or making connections between ideas where none previously existed.” – (Mitchell Rigie and Keith Harmeyer, SmartStorming)
 Three reasons why people are motivated to be creative:
i. need for novel, varied, and complex stimulation
ii. need to communicate ideas and values
iii. need to solve problems
2.1.1: Characteristics of the creative personality
a) Creative individuals have a great deal of energy, but they are also often quiet and at rest.
b) Creative individuals tend to be smart, yet also naïve/immature at the same time.
c) Creative individuals have a combination of liveliness and discipline, or responsibility and irresponsibility.
d) Creative individuals alternate between imagination and fantasy on one end, and rooted sense of reality at the other.
e) Creative individuals are also remarkable humble and proud at the same time.
f) Generally, creative people are thought to be rebellious and independent.
g) Most creative persons are very passionate about their work, yet they can be extremely objective about it as well.
h) The openness and sensitivity of creative individuals often exposes them to suffering pain yet also a great deal of enjoyment

5
2.2. Innovation (innovative behavior/skills) - What is „innovation?‟ Is the process of translating an idea or invention into a good or service that creates value or for which customers will pay. To be called an innovation, an idea must be replicable at an economical cost and must satisfy a specific need. Innovation involves deliberate application of information, imagination and initiative in deriving greater or different values from resources, and includes all processes by which new ideas are generated and converted into useful products. In business, innovation often results when ideas are applied by the company in order to further satisfy the needs and expectations of the customers. In a social context, innovation helps create new methods for alliance creation, joint venturing, flexible work hours, and creation of buyers' purchasing power. Innovations are divided into two broad categories: (1) Evolutionary innovations (continuous or dynamic evolutionary innovation) that are brought about by many incremental advances in technology or processes and (2) revolutionary innovations (also called discontinuous innovations) which are often disruptive and new. There is little consensus on exactly how to define innovation. Whilst it is widely understood and accepted that innovation is a major source of an organization‟s competitive advantage. Actual definitions of innovation vary often so as to better meet the requirements or characteristics of a particular study. What is common in most definitions of innovation is a focus on novelty and newness and that it creates profit or adds economic value to the organization responsible for it. In the 1930‟s Joseph Schumpter put forward five types of innovation definitions:
i. Introduction of a new product or a qualitative change in an existing product
ii. Process innovation new to an industry
iii. Opening of a new market
iv. Development of new sources of supply for raw material

6
v. Other inputs and changes in the industrial organization
2.2.1 Creativity vs. Innovation compared  The main difference between creativity and innovation is the focus. Creativity is about unleashing the potential of the mind to conceive new ideas. Those concepts could manifest themselves in any number of ways, but most often, they become something we can see, hear, smell, touch, or taste. However, creative ideas can also be thought experiments within one person‟s mind. Innovation, on the other hand, is completely measurable. Innovation is about introducing change into relatively stable systems. It‟s also concerned with the work required to make an idea viable. By identifying an unrecognized and unmet need, an organization can use innovation to apply its creative resources to design an appropriate solution and reap a return on its investment.  Organizations often chase creativity, but what they really need to pursue is innovation. Theodore Levitt puts it best: “What is often lacking is not creativity in the idea-creating sense but innovation in the action-producing sense, i.e. putting ideas to work.”  Creativity is the capability or act of conceiving something original while innovation is the implementation of something new. When people come up with new ideas, this display of creativity but there is no innovation until you take the risk of implementing it. Many organizations depend on the combination of these two elements in establishing and maintaining a competitive advantage.  Creativity can be described as one's ability to come up with a clever/practical way of solving a problem, or of doing something, by thinking outside the box. Innovation is the implementation of a creative idea, the action of solving a problem or creating something in a way no one has thought of before. Innovation usually stems from creativity.

7
2.2.2 How to become more creative and innovative
 Lots of people mistakenly think that creativity is related to genes and that some people are born to innovate while others aren't but that's completely wrong. By altering your life style and making some changes to your belief system you can become more creative and innovative even if you currently lack them both.
 Without being creative and innovative you will become stuck in a fixed life routine and you might never be able to solve your problems since you will always be trying the same methods that don‟t work. Here are five steps to become more creative and innovative
Here the steps you need to do in order to become more creative and innovative:
i. Change your routine: Research has shown that fixed routine is a great creativity killer. In order to become more creative and innovative you need not to stick to the same routine each day. Change anything you can change in your daily activities, try to do the same things in a different way or even try things you never tried before
ii. Dedicate free time for creative thinking: Even if you changed your routine you might still not be that creative because of being bound by rules. In order to become really creative you need to dedicate some free time for creative thinking where you are not bound by any rules
iii. Get rid of your limiting beliefs: One of the things that kills creatively and prevents innovation is limiting beliefs. Limiting beliefs prevent you from seeing possibilities and the result is being stuck in a certain reality without trying to change it
iv. Overcome fear of failure: In order to become more creative and innovative you need to keep trying and failing. Creativity is all about doing few wrong things until you come across the right thing. If you fear failure or if you fear taking risks then you will always be stuck in your comfort zone and you will never become creative

8
v. Learn to observe: Sometimes observing other people can inspire you and lead you to innovate and become creative. Contrary to common beliefs you wont be stealing people's ideas when you observe them but instead you will be adding pieces of information from here and there together until you come up with something totally new
2.2.2: Proactive behavior Action and result oriented behavior, instead of the one that waits for things to happen and then tries to adjust (react) to them. Proactive behavior aims at identification and exploitation of opportunities and in taking preemptory action against potential problems and threats, whereas reactive behavior focuses on fighting a fire or solving a problem after it occurs. Proactive behavior refers to the first kind of person - those who make things happen. Many scholars believe that everyone has the potential to be the kind of person who makes things happen. That is, everyone can display more or less proactive behavior, depending on their motivation in the situation. Proactive Behavior Reactive Behavior Goes the extra mile Does the minimum Exceeds expectations Meets expectations Takes calculated risks Risk Adverse Independent thinker Needs to be told Anticipates problems Solves problems Seeks new solutions Relies on status quo Questions/Challenges Assumes 2.2.3: Need for achievement behavior /orientation
Need for achievement (N-Ach) refers to an individual's desire for significant accomplishment, mastering of skills, control, or high standards. The term was first used by Henry Murray[1] and associated with a range of actions. These include: "intense, prolonged and repeated efforts to accomplish something difficult. To work with singleness of purpose towards a high and distant goal.

9
To have the determination to win". The concept of NAch was subsequently popularised by the psychologist David McClelland.[2]
This personality trait is characterized by an enduring and consistent concern with setting and meeting high standards of achievement. This need is influenced by internal drive for action (intrinsic motivation), and the pressure exerted by the expectations of others (extrinsic motivation). Measured by thematic appreciation tests, need for achievement motivates an individual to succeed in competition, and to excel in activities important to him or her.[3] Need for Achievement is related to the difficulty of tasks people choose to undertake. Those with low N-Ach may choose very easy tasks, in order to minimise risk of failure, or highly difficult tasks, such that a failure would not be embarrassing. Those with high N-Ach tend to choose moderately difficult tasks, feeling that they are challenging, but within reach. People high in N-Ach are characterized by a tendency to seek challenges and a high degree of independence. Their most satisfying reward is the recognition of their achievements. Sources of high N-Ach include:
i. Parents who encouraged independence in childhood
ii. Praise and rewards for success
iii. Association of achievement with positive feelings
iv. Association of achievement with one's own competence and effort, not luck
v. A desire to be effective or challenged
vi. Intrapersonal Strength
vii. Desirability
viii. Feasibility
ix. Goal Setting Abilities
2.2.4: Networking behavior
 The role of networks in fostering business performance and economic growth has been widely acknowledged by entrepreneurship scholars in the recent years. Networks are deemed to have the potential to address challenges related to Smallness, Newness and Isolation of the enterprises.

10
 Why be concerned about entrepreneurial networks? (the rationale for networking)
i. People with strong social support networks enjoy better physical and mental health than those without such networks. Not only are people with good support networks less likely to become ill, but when they do, they recover faster.
ii. People with large personal networks tend to live longer than those with small networks.
iii. Personal happiness and satisfaction depend in large part on the quality of relationships with other people.
iv. Building good working relationships is the main cause of success for managers who take charge of a new situation
v. Close relationships with customers save money. It costs three to five times as much to get a new customer as it does to keep an existing one!
vi. Strong partnerships with suppliers yield lower costs and higher quality products and services
vii. Business effectiveness, in general, depends more on “human-related activities”, such as building relationships, interpersonal skills, and communication, than on technical skills and abilities
viii. Managers with large personal networks get higher-paying positions than managers with small networks
ix. Managers with larger, well-diversified networks get promoted faster and at younger ages compared with their peers with underdeveloped networks
x. Professionals who find jobs through personal contacts (instead of classified advertisements or other impersonal means) find better, more satisfying jobs that they stay with longer

11
xi. Relationships are fundamental human need
xii. Repeated interactions encourage cooperation, trust, & ties
xiii. Networks make the world small
xiv. It supports accumulation, and deployment of physical and soft resources, which entrepreneurs can not do without (Aldrich and Zimmer, 1986)
1.3.8: Comparison of Traditional Managers and Entrepreneurs
BASIS
TRADITIONAL MANAGERS
ENTREPRENEURS
1. Primary motives
Promotion of traditional rewards e.g. Office, staff and power
Independence, opportunity to create and money.
2. Activity
Delegates and supervises more than direct involvement
Direct involvement
3. Risk
Careful
Moderate risk taker
4. Status
Concerned about status symbols
Not concerned about status symbols
5. Decision
Usually agrees with those in upper management positions
Follow dreams with decisions
6. Failure and mistakes
Tries to avoid mistakes and surprises
Deals with mistakes and failures

12
2. CHAPTER TWO: INFLUENCES ON ENTREPRENEURIAL BEHAVIOUR – THEORETICAL EXPLANATIONS
Entrepreneurial behavior is considered a function of the individual motivations, ability and environmental influences. A number of theories have been proposed to explain these phenomena. These are:
i. Psychological explanations of entrepreneurial behavior
ii. Sociological explanations of entrepreneurial behavior
iii. Socio-economic background factors (demographic factors)
iv. Environmental factors
2.1 PSYCHOLOGICAL EXPLANATIONS OF ENTREPRENEURIAL BEHAVIOR
Some psychologists have attempted to identify individual characteristics capable of successfully predicting entrepreneur behavior. These efforts have culminated into models which are posited as capable of accounting for differences between entrepreneurs and other members of society in terms of a single trait or a constellation of traits. These are sometimes referred to as 'born' models, in the sense that they tend to view entrepreneur behavior as a disposition of in-born qualities.
2.1.1 Need for achievement (N’Arch)
McClelland (1961), the pioneer of trait models, suggested that individuals with high need for achievement (n’Ach) were more likely to choose entrepreneurial careers than others. He defined n‟Ach as "the desire to do well for the sake of an inner feeling of personal accomplishment". A person endowed with such a need will spend time considering how to do a job better or how to accomplish something important to them.
 High achievers are said to like situations where they can take personal responsibility for finding solutions to problems.
 They like rapid feedback on their performance so that they can judge whether they are improving or not.
 They avoid what they perceive as very easy or very difficult tasks as they dislike succeeding by chance.

13
 They prefer striving to achieve targets which present both a challenge and are not beyond their capabilities. This ensures worthwhile effort and results in feelings of accomplishment and satisfaction.
2.1.2 Locus of control
- Rotter (1966) proposed a model to measure 'locus of control' the extent to which people believe that they control their own destinies. People with an internal locus of control are those individuals who believe themselves to be in control of their destinies.
- In contrast, those with an external locus of control sense that, fate, in the form of events outside their control or powerful people, has a dominating influence over their lives.
- Individuals with a strong internal locus of control are, according to this model, more likely to engage in entrepreneurship. The reasoning behind this model is that people who believe that they control their destinies would be more willing to venture into the uncertainties and challenges involved in running a business compared to those that believe that most of what happens to them is outside their control.
2.1.3 Psychodynamic model
- The Psychodynamic model was proposed by Kets de Vries (1977). He posed entrepreneurial behavior as an outcome of a family background often filled with images of endured hardships.
- Such experiences may leave the adult troubled by a burdensome psychological inheritance centered around problems of self-esteem, insecurity and lack of confidence and with repressed aggressive wishes towards persons in control.
- The entrepreneur thus becomes a deviant, drifting from job to job unable to 'fit in' and develops a non-conformist stand.
- The refusal to accept authority structure and social norms results into an inability to work smoothly with others which in turn leads to the setting up of an independent economic unit as an act of " innovative rebelliousness".
2.1.4 Risk taking propensity
- According to this theory, the level of risk preference low, moderate, high can influence an individual's decision to start a business.

14
- Risk taking propensity is defined as a generalized tendency to choose more risky alternatives (Bird, 1989).
- Reuss (1970) suggested that "venture spirit and willingness to take risks" is the major trait of entrepreneurship.
- Bird (1989) suggests that characteristics that dispose people to orientation towards risk taking include optimism; tolerance to ambiguity; high need to achieve; fearlessness; impulsiveness; a decision cognitive style; beliefs about ones control; a personal history in which risk was rewarded; and having family conditions that support risk taking, such as a working spouse or a social supportive system.
2.1.5 Innovation
- Many social scientists have singled out innovation as the true mark of an entrepreneur (Schumpeter, 1934; Stevenson and Sahlman, 1989; Stanworth et al, 1989). This is in line with the view of the entrepreneur as an agent of change, bringing about new resource combinations.
- Stanworth and Gray, (1991) draw a distinction among the terms innovation, creativity and change.
i. To create is to bring in something into existence...so a craftsman may be very creative.
ii. To innovate is to bring novelties (derived from Latin word novus for "new”), so it is likely to be concerned with broader processes of change within an organization.
iii. While all innovations are concerned with change, not all changes are innovations (Stanworth and Gray, 1989). Hence, buying new equipment would be a change, but not an innovation referring the 'organized tour' of business.
2.1.6 Psychological models: conclusion The principle weaknesses of the trait approach have been summarised by a number of experts. Chell (1985), a leading expert in the area of entrepreneurship, says that there would appear to be a great deal which is equivocal and inconclusive about the trait approach to entrepreneurship. Later, she asserted that "there appears to be very low correlation between the assessment of the trait and actual behaviour" (Chell, 1986).

15
• Several observers have questioned the rationale for predicting entrepreneur behavior using the specific traits discussed above. They contend that some of the more obvious and possibly decisive attributes have been left out. Lynn (1969) suggested that one of the underlying personality traits of the entrepreneur could be anxiety or neuroticism. Ray (1993) has added physical appearance and likeability. He goes on to argue that other theories may be better placed to explain entrepreneurial behavior than personal traits. Among these he mentions sports psychology and activation theory of tourism. Of the latter, he says that entrepreneurs may be high activation people, who prefer unstructured tours, while managers, small business owners and franchisees are the low‑activation people, preferring the 'organized tour' of business.
2.2 SOCIOLOGICAL EXPLANATIONS OF ENTREPRENEURIAL BEHAVIOR
While psychological models attempt to explain behavior in terms of qualities within an individual, sociological theories suggest that entrepreneur behavior is a function of the individual's interaction with society. That is, entrepreneurs are 'made' by society. This section explores four main sociological models.
2.2.1 The social marginality model
- This model is based on two premises. The first premise is that the meaning of any economic action (including starting a business) is the satisfaction of wants. It follows then that there would be no economic action if there were no needs to be satisfied.
- The other premise is that it is society that shapes the desires we observe. Our choices are therefore fenced by social habits and conventions (Schumpeter, 1934). Stanworth and Curran (1976) used the above reasoning to explain the process of entry into entrepreneurship.
- Stanworth and Curran (1976) suggest that individuals who perceive a strong level of incongruency between their personal attributes and the role they hold in society (eg. teachers, policemen, nurses, lawyers, etc) will be motivated to change or reconstruct their social reality. This can take many forms. Some people may reconstruct their reality by joining political parties, religious organisations, charities, etc. Others may change careers. Self employment offers another possibility.

16
2.2.2 Inter-generational inheritance of enterprise culture via role modeling - This theory purports that entrepreneur practice is largely inherited. Accordingly, offsprings of entrepreneurial families are more likely to be involved in businesses than others.
- Several explanations can be offered to support this theory. A person who grows up around a family that runs a business is likely to benefit from the skills, accumulated experiences and connections of the existing firm.
- She or he is also likely to have better access to advice, credit, established markets, sources of inputs, etc. The fact that these will make it easier to start a business may be a big encouragement to those associated with businessmen.
- Birley (1984) has suggested that a strong grounding in the business and ownership ethic at an early age is a useful and powerful driving force for children as they begin to choose future careers.
2.2.3 Small firms as role models
There has been a notion that those who form small businesses are likely to have previously worked in small firms and to have used them as a role model (Chell, 1985). For one thing, it may become easier for the potential entrepreneur to envision a role comparable to that of his boss. Also, the owner manager may sometimes act as a mentor, playing the role of convincing, assuring, and sometimes instructing subordinates in the process of starting their own ventures (Shapero and Sokol, 1982). In some cases, the existing business may assure some support to the new one, say, as a market or a source of materials or credit.
2.2.4 Sociological models: conclusion
Although sociological models seem to be more closely related to entrepreneur behavior than are psychological characteristics, they have their own share of criticisms. The most notable weakness of these models is that each tends to explain a certain group of entrepreneurs, leaving out the rest. Another weakness is that they do not tell us why people exposed to the same social situation will choose careers differently, with some selecting self employment.

17
Related to this is the possibility that it helps to see someone lesser than oneself establish the credibility for an act; an employee may be convinced that if the owner manager can do it, he should be able to do it equally or even better.
2.3. SOCIO-ECONOMIC BACKGROUND FACTORS (DEMOGRAPHIC FACTORS)
The entrepreneurship research literature mentions a number of socio‑economic background factors that are considered to influence propensity to start a business. These factors include age, ethnicity, marital status, education and experience. This section reviews these factors. The entrepreneurship research literature mentions a number of socio-economic background factors that are considered to influence propensity to start a business. These factors include age, ethnicity, marital status, education and experience. This section reviews these factors.
2.3.1 Age
Given the usual demands of the process of starting a new business, one would expect the middle aged person to be better placed than young or old one to successfully enter into entrepreneurship. Young people may have the energy required to launch new ventures, but lack the financial means to do so. Older people have money, but lack the energy to start independent ventures and willingness to change their lifestyles. Middle aged people have some money, and energy and are more willing to change their lifestyles. However, many of them are likely to be 'forced' into some form of self employment after retirement.
2.3.2 Ethnicity Ethnic origin of a person is said to influence the choice between paid employment and self semployment. Shapero (1982) argues that ethnic groups that have produced high numbers of entrepreneurs are also displaced groups. This argument is based on the social marginality thesis, which contends that marginal groups have a higher propensity of becoming self employed.
2.3.3 Marital status Studies in the UK have shown that the self-employment rate is much lower for single persons than for

18
those in other categories. Marital status is closely related to age and stages of life; married people are likely to be middle or old aged, while single people will mostly be younger. Even when age is controlled for, the rate of self-employment remains lower for singles (Burrows, 1991). This appears to be in line with the social development model, which recognized the influence of social support system in one's propensity to become an entrepreneur.
2.3.4 Education Two conflicting hypotheses have been proposed regarding the role of education in the entrepreneurial process. The first is that formal education can operate as an impediment to entrepreneurship because, rather than develop creative free thinkers, it fosters conformity and low tolerance for ambiguity, leading to thought and behavior processes that refuse to admit tolerance, and social values that preclude "getting one's hands dirty" (Ronstadt, 1984). The alternative argument is that education develops competencies required in an entrepreneurial venture as it fosters creativity, curiosity, open mindedness and good interpersonal skills. As well, technical education is important to careers and ventures using or creating advanced technology (Bird, 1989).
2.3.5 Socio-economic background factors: conclusion
Social economic background factors are fairly good in explaining the entry into entrepreneurship. They however have the weakness of being closely related, to such an extent that it may sometimes be difficult to know which factors are most important in determining behavior. The factors are the easiest to research as they are merely classification variable, which are found even in secondary sources of information. Like all other individual characteristics, they cannot fully explain differences in behavior between entrepreneurs and those in other careers or between successful and unsuccessful entrepreneurs.
2.4 ENVIRONMENTAL FACTORS
So far, our discussion has focused around individual characteristics that impact on the propensity to become self employed. However, persons with similar characteristics may engage in different occupations, depending on the type of environment they face. This is why the there are significant

19
spatial variations in the rate of formation of small businesses in various parts of the world as well as within different countries
2.4.1: Barriers to entry
- The ease of entry as determined by the resources required to successfully launch a venture depends on the types of industries in the localities, with an industrial climate biased towards small, independent or autonomous units of employment being more favorable.
- Probability of establishing a small business in localities dominated by industries with high barriers to entry, such as steel, ship building, chemicals and aircraft manufacturing is expected to be lower, compared to those with less domination by heavy industries.
2.4.2: Plant size structure
The plant size structure is likely to influence the opportunities for passing over skills, experiences and role modelling in a locality. Generally, workers in smaller firms have closer contact with customers as well as the owner manager than ones in larger firms. As noted before, workers in such an environment are more likely to be self-employed than their counterparts in larger firms.
2.4.3 Occupational structure As indicated in the discussion of social class influence, the majority of those who form small businesses come from small employer, employee, manager and skilled worker backgrounds. Regions with more people involved in these occupations are therefore more likely to form a large number of businesses than those with different types of jobs.
- Again, Storey (1994) notes that the evidence from empirical studies in UK on this relationship is ambiguous. A positive relationship was found in studies in West Anglia, but such association was not found either in East Midland or North East of England.
2.4.4 The Economy
Economic factors that are considered responsible for spatial variations in small firm formation include availability of information, access to finance, availability of premises, ownership structure, regional specialization and demand.

20
2.4.5 Access to information According to Sweeny (1987), information tends to be local, and most regular contacts are normally within 30 minutes of a person's travelling time. The implication of this is that the amount and quality of information is mainly dependent on the wealth of stock of knowledge in the locality. Knowledge comes in the form of conferences, exhibitions, contact with potential customers, suppliers, small business owner managers and informal reading. Localities rich in information are typically administrative centers, and regions with dynamic or progressive industries. Regions dominated by mature technology, externally owned firms, declining level of best practice as well as those relying predominantly on extractive industries tend to have poor access to information and hence lower rates of small firm formation.
2.4.6: Demand Most small businesses serve restricted geographical markets. As a result, there will be more opportunities in more affluent or populous areas than others. A few firms may be sufficient to exploit all opportunities in a rural locality. Therefore, the rate of small firm formation in rural areas will be lower compared to urban ones.
2.4.7 Ownership structure Areas dominated with subsidiaries of large companies are likely to have fewer opportunities for new, small businesses than ones with single unit ones. This is because while small single unit firms will source their products locally, subsidiaries have less freedom in choosing the source of inputs.

21
CHAPTER THREE: STARTING A NEW BUSINESS VENTURE
3.1: Important steps to Starting a Business
i. Make A Business Plan
Too many entrepreneurs fail to plan when they start a new business. A detailed written business plan is an essential first step. Research the market and its size. Determine whether there is a demand for the product or service. Consider the advertising and marketing budget required to acquire customers. Accurately estimate the costs and pricing of the product or service. Outline the steps necessary to get from the idea to the marketplace.
ii. Choose a Business Location
iii. Consult With Experts
Many entrepreneurs don't talk to consultants or other business owners because they fear having their ideas stolen. This often keeps them from seeking and getting the advice they need to start a new business successfully. Seasoned business owners in similar businesses and experienced consultants can help you avoid common pitfalls and perhaps raise questions you haven't considered. They can also become part of your network to help you along the way once you start your new business. The local chamber of commerce, trade organizations, and the SBA's small business development center in your area are good sources for finding the experts you need.
iv. Find Reliable Advisors
Industry experts, a good small business CPA and and a business attorney should be important members of your team. You should also develop a relationship with your banker. These professionals can help you be aware of market changes, financial and tax issues, business entity and liability issues. They may also be able to help you find and vet potential investors, should you need them.
v. Finance your Business: Find government backed loans, venture capital and research grants to help you get started.

22
vi. Establish a Relationship With Your Core Customers
Sometimes entrepreneurs focus too much on the service, product or process of starting a new business and not enough on the customer. Talk to the people your new business is aimed at. Be sure you understand their needs and expectations. Analyze how your product or service will satisfy those requirements better than what is already available to them. What you learn from potential buyers can help you tweak your ideas for maximum satisfaction. Once you've successfully addressed the needs of your core customers, you can look for ways to adapt and modify your new business for a wider market.
vii. Be Ready To React Quickly To Market Changes
Every market has fluctuations. The successful new business owner recognizes this fact from the beginning. Build in contingent plans to address these fluctuations. New technologies, processes and product improvements come along every day. Keep current with industry news that might affect your new business. Most entrepreneurs will tell you that the business they actually run is very different than what they thought it would be when they began. A business that can't quickly adapt to these inevitable changes is likely to be one of the 66% that fail.
viii. Determine the Legal Structure of Your Business; Decide which form of ownership is best for you: sole proprietorship, partnership, Limited Liability Company (LLC), corporation, S corporation, nonprofit or cooperative.
ix. Register a Business Name ("Doing Business As"): Register your business name with your state government.
x. Get a Tax Identification Number
Learn which tax identification number you'll need to obtain from the IRS and your state revenue agency.
3.2: Environmental Assessment:
- The environment is the most comprehensive component in the venture creation process. It includes all the factors that affect the decision to start a business, for example, government regulation, competitiveness, and life cycle stage.

23
- Within specific industries and in specific geographic regions, environmental variables and the degree of their impact will differ. The new venture process begins with an idea for a product, service, or business.
- In order to succeed in business undertaking, an entrepreneur should scan the environmental concerned before entering the venture.
- An environmental assessment is synonymously used along with the term “environmental scanning”. This is very vital for any business undertaking venture. When entrepreneur performs an environmental assessment she/he will use the tool termed as SWOT Analysis.
3.1.1: External Environment Analysis (Opportunities and Threats)
- Once the business undertaking has identified its customer tend to be, important values it holds, type of products/services it produces renders, and entrepreneur, it should know the part of the environment it needs to monitor to achieve her goals. Business entity has to monitor the external macro environmental forces. When these macro environmental forces are supportive to the business ideas, they are categorized as „opportunities‟. But when they are potentially hindering the implementation of the business ideas, they categorized as „threats‟. Examples of external environment factors/forces are:
OPPORTUNITIES
THREAT S
A: Political forces
i. Presence of stable political stability
Presence of unstable political stability
ii. Presence of favorable employment legislation
Absence of favorable employment legislation
iii. Presence of good government orientation and stability
Presence of poor government orientation and instability
iii. Presence of good foreign trade policies
Presence of poor foreign trade policies
iv. Presence of good tax laws and policies
Presence of poor tax laws and policies
iii. Presence of fair competition laws and policies
Absence of fair competition laws and policies

24
OPPORTUNITIES
THREAT S
B: Economic forces
i. It is relatively easy to access fund and capital for starting business
Unavailability of capital to finance business startups
ii. Raw materials and commodities are readily available and cheap
Raw materials and commodities are hardly available, at very high prices
iii. Energy costs are relatively low and supply is reliable
Energy costs are very high and supply erratic and unreliable
iv. Stable Exchange rates
Fluctuating Exchange rates
Low unemployment rate, and high workforce skill levels.
High unemployment rate, and low workforce skill levels.
C: Natural/environmental forces
ii. Rare occurrences of natural disasters like floods, earthquakes, and volcanoes
high occurrences of natural disasters like floods, earthquakes, and volcanoes
D: Demographic forces
i. Huge total population is a potential market
Sparse total population
ii. Favorable population distribution
unfavorable population distribution
iii. Favorable population density
unfavorable population density
iv. Favorable age group distribution
unfavorable age group distribution
v. Favorable birth and death rate
unfavorable birth and death rate
vi Favorable life expectancy at birth
unfavorable life expectancy at birth
3.1:2 Internal factors analysis (Strength and weakness) When the following factors are present in the business enterprise, we call them strengths. But when they are absent/ lacking, we call them weaknesses. Some of the common internal strengths and or weakness are
Sn
Strengths
Weakness
1
Availability of distinctive competences
Absence of distinctive competences
2
Adequate internal financial resources
Inadequate internal financial resources
3
Availability good competitive skills
Absence of competitive skills
4.
Availability of proprietary technology
Lack of proprietary technology
5
Presence clear strategic direction
No clear strategic direction
6
Presence of managerial depth and talents
Lack of managerial depth and talents
7
Resilience to competitive pressure
Vulnerable to competitive pressure
8
Access to economies of scale
Lack of access to economies of scale
9
Presence of competitive advantage
Presence of competitive disadvantage

25
3.3: Sources of Business Ideas
Business ideas are all around you. Some business ideas come from a careful analysis of market trends and consumer needs; others come from chance/coincidence. If you are interested in starting a business, but don't know what product or service you might sell, exploring these ways of getting business ideas flowing will help you choose. i. Examine your own skills set for business ideas. Do you have a talent or proven track record that could become the basis of a profitable business? The other day I spoke to a man who had spent years managing cleaning services at a hospital. Today he runs his own successful domestic and business cleaning service. An ex-logger I know is now making his living as an artist; he creates "chainsaw sculptures" out of wood. And the examples of professionals who have started their own agencies or consulting service businesses are legion. To find a viable business idea, ask yourself, "What have I done? What can I do? Will people be willing to pay for my products or services?" ii. Keep up with current events and be ready to take advantage of business opportunities. If you read or watch the news regularly with the conscious intent of finding business ideas, you'll be amazed at how many business opportunities your brain generates. Keeping up with current events will help you identify market trends, new fads, industry news - and sometimes just new ideas that have business possibilities. iii. Invent a new product or service. Think back 30 years ago. Was there a huge demand for anti-virus software, Internet Service Providers, or desktop computers? No! The key to coming up with business ideas for a new product or service is to identify a market need that's not being met..
Look around and ask yourself, "How could this situation be improved?" Ask people about additional services that they'd like to see. Focus on a particular target market and brainstorm business ideas for services that that group would be interested in.

26
iv. Add value to an existing product. The difference between raw wood and finished lumber is a good example of putting a product through an additional process which increases its value, but additional processes are not the only way value can be added. You might also add services, or combine the product with other products. For instance, a local farm which sells produce also offers a vegetable delivery service; for a fee, consumers can have a box of fresh vegetables delivered to their door each week. What business ideas can you develop along these lines? Focus on what products you might buy and what you might do to them or with them to create a profitable business. v. Investigate other markets. Some business ideas aren't suited to local consumption - but appeal greatly to a foreign market. My own little town is surrounded by acres of wild blueberries. For years the bushes produced berries that mainly fed bears and birds; B.C. has a thriving blueberry industry that doesn't leave room for a wild blueberry market. But one entrepreneur realized that there is a high demand for products such as these in Japan - and those same wild blueberries are now being harvested and shipped. Finding out about other cultures and investigating other market opportunities is an excellent way to find business ideas. vi. Buy a Franchise or an Existing Business Many times, the fastest and easiest way to start a business is to simply buy an existing business or franchise. Franchises are attractive because they‟ve already proven successful and you are simply buying into their system. Existing businesses are attractive because you can pick and choose the right business and most of the legwork has already been done. 3.4 Business Incubation
"Business incubation is a unique and highly flexible combination of business development processes, infrastructure and people designed to nurture new and small businesses by helping them to survive and grow through the difficult and vulnerable early stages of development." Business incubation provide SMEs and start-ups with the nurturing environment needed to develop

27
and grow their businesses, offering everything from virtual support, rent-a-desk through to state of the art laboratories and everything in between. They provide direct access to hands on intensive business support, access to finance and experts and to other entrepreneurs and suppliers to really make businesses and entrepreneurs to grow. Business incubation provides a nurturing, instructive and supportive environment for entrepreneurs during the critical stages of starting up a new business. The goal of incubators is to increase the chance that a start-up will succeed, and shorten the time and reduce the cost of establishing and growing its business. If successful, business incubators can help to nurture the companies that will form the true creators of a region‟s or nation‟s future wealth and employment. Incubators serve as a launching pad for young and small businesses. Start-ups, which are innately dynamic entities, need access to support, and incubators are a means of providing this.
3.5 Importance of Business Incubators
Business incubators support the development of start-ups by providing them with advisory and administrative support services. According to the National Business Incubation Association, an incubator's primary objective is to produce successful and financially viable firms that can survive on their own. Early incubators focused on technology companies or on a combination of industrial and service companies, but newer incubators work with companies from diverse industries.
i. Finance: Incubators help start-ups save on operating costs. The companies that are part of an incubator can share the same facilities and share on overhead expenses, such as utilities, office equipment rentals, and receptionist services. Start-ups can also take advantage of lower lease rates if the incubator is located in low-rent industrial parks. Incubators may also help start-ups with their financing needs by referring them to angel investors and venture capitalists, and helping them with presentations. Start-ups may have better luck securing financing if they have the stamp of approval of incubator programs.
ii. Management: In addition to financial help, start-ups also need guidance on how to compete successfully with established industry players. Incubators can tap into their networks of experienced entrepreneurs and retired executives, who can provide management guidance and operational assistance
iii. Synergy: The close working relationships between an incubator's start-ups create synergies. Even after the start-ups leave an incubator, the connections and networks established through these relationships can endure for a long time. Start-up entrepreneurs can provide encouragement to one another, and employees may share ideas on new

28
approaches to old problems. Start-ups may plan joint marketing campaigns and cooperate on product development initiatives..
iv. Economy: By helping new businesses prosper, incubators assist in creating long-lasting jobs for their host communities. In a March 2003 Association for Small Business and Entrepreneurship conference paper hosted by the University of Central Arkansas Small Business Advancement National Center, Northwestern Oklahoma State University professor Patti L. Wilber and her colleague cited research to write that start-ups in incubation programs have greater viability and show superior financial performance over the long term. They create long-lasting jobs for new graduates, experienced mid-career personnel, and veteran executives. This benefits communities and drives economic growth.
stressful process and go a long way towards ensuring the busines you start lasts and thrives. 3.5 Common reasons for business failures When you're starting a new business, the last thing you want to focus on is failure. But if you address the common reasons for failure up front, you'll be much less likely to fall victim to them yourself. Here are the top 7 reasons why businesses fail and tips for avoiding them. i. You start your business for the wrong reasons. Would the sole reason you would be starting your own business be that you would want to make a lot of money? Do you think that if you had your own business that you'd have more time with your family? Or maybe that you wouldn't have to be answerable to anyone else? If so, you'd better think again. On the other hand, if you start your business for these reasons, you'll have a better chance at entrepreneurial success:
 You have a passion and love for what you'll be doing, and strongly believe -- based on educated study and investigation -- that your product or service would fulfill a real need in the marketplace.
 You are physically fit and possess the needed mental stamina to withstand potential challenges. Often overlooked, less-than-robust health has been responsible for more than a few bankruptcies.
 You have drive, determination, patience and a positive attitude. When others throw in the towel, you are more determined than ever.

29
 Failures don't defeat you. You learn from your mistakes, and use these lessons to succeed the next time around. Head, SBA economist, noted that studies of successful business owners showed they attributed much of their success to "building on earlier failures;" on using failures as a "learning process."
 You thrive on independence, and are skilled at taking charge when a creative or intelligent solution is needed. This is especially important when under strict time constraints.
 You like -- if not love -- your fellow man, and show this in your honesty, integrity, and interactions with others. You get along with and can deal with all different types of individuals.
ii. Poor Management Many a report on business failures cites poor management as the number one reason for failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don't do well, and seek help, business owners may soon face disaster. They must also be educated and alert to fraud, and put into place measures to avoid it. Neglect of a business can also be its downfall. Care must be taken to regularly study, organize, plan and control all activities of its operations. This includes the continuing study of market research and customer data, an area which may be more prone to disregard once a business has been established. A successful manager is also a good leader who creates a work climate that encourages productivity. He or she has a skill at hiring competent people, training them and is able to delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and able to confront change, make transitions, and envision new possibilities for the future. iii. Insufficient Capital A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales.
It is imperative to ascertain how much money your business will require; not only the costs of starting, but the costs of staying in business. It is important to take into consideration that many

30
businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. This business startup calculator will help you predict how much money you'll need to launch your business. iv. Location, Location, Location Your college professor was right -- location is critical to the success of your business. Whereas a good location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the best-managed enterprise. Some factors to consider:
 Where your customers are
 Traffic, accessibility, parking and lighting
 Location of competitors
 Condition and safety of building
 Local incentive programs for business start-ups in specific targeted areas
 The history, community flavor and receptiveness to a new business at a prospective site
v. Lack of Planning Anyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning -- and hard work -- success would not have followed. The same could be said of most business successes.
It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future. Components may include:
 Description of the business, vision, goals, and keys to success
 Work force needs
 Potential problems and solutions
 Financial: capital equipment and supply list, balance sheet, income statement and cash flow analysis, sales and expense forecast

31
 Analysis of competition
 Marketing, advertising and promotional activities
 Budgeting and managing company growth
vi. Overexpansion A leading cause of business failure, overexpansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies. At the same time, you do not want to repress growth. Once you have an established solid customer base and a good cash flow, let your success help you set the right measured pace. Some indications that an expansion may be warranted include the inability to fill customer needs in a timely basis, and employees having difficulty keeping up with production demands. If expansion is warranted after careful review, research and analysis, identify what and who you need to add in order for your business to grow. Then with the right systems and people in place, you can focus on the growth of your business, not on doing everything in it yourself.

32
CHAPTER FOUR: FORMS OF BUSINESS OWNERSHIPS
4.1 The Sole Proprietorship
A sole proprietorship is a business that is owned and operated by one person.
 The enterprises has no existence apart from its owners
 The individuals have a right to all of the profits and bear all of the liability for debts and obligations of the business.
 The individuals also has unlimited liability i.e. his/her business and personal assets stand behind the operation. If the company cannot meets its financial obligations the owner can be forced to sell the family house, and whatever assets there are in order to satisfy the creditors.
To establish a sole proprietorship, a person needs merely to obtain whatever local and state licences are necessary to begin operations .If the proprietor should choose a fictitious or assumed name ,he/she must also file a “ certificate of assumed business name “ with the country . Because of its ease of formation, the sole proprietorship is the most widely used legal form of organization.
4.1.1 Advantage of Sole Proprietorship
i. Easy to form - There is less formality and fever restrictions associated with established a sole proprietorship than with any other legal form .The proprietor needs little or no governmental approval ,and it usually is less expensive than a partnership or corporation.
ii. Sole ownership of profits - The proprietor is not required to share profits with anyone.
iii. Decision–making and control vested in one owner .the are no co-owners or partners who must consulted in the running of the operations
iv. Flexibility - Management is able to respond quickly to business needs in the form of day to day management decisions as governed by various laws and goods sense.
v. Related freedom from government control - Except for obtaining necessary licences, there is very little governmental interference in the operation.
vi. Freedom corporate business taxes - Proprietors are fixed as individual taxpayers and not as businesses.
4.1.2 Disadvantages of Sole Proprietorship
i. Limited capital - In a sole proprietorship business, the owner arranges for the required capital for the business. It is difficult for a single individual to raise a huge amount of capital. The owner‟s own funds as well as borrowed funds sometimes become insufficient

33
to meet the requirement of the business‟s growth and expansion. Venture capitalists and banks generally do not lend money to sole proprietorships.
ii. Unlimited liability - In case the sole proprietor fails to pay the expenses arising out of business activities, his personal properties may have to be used to pay for those. This generally discourages the sole proprietor from taking risks. He thinks cautiously while deciding to start or expand the business activities.
iii. Lack of continuity - The existence of a sole proprietorship business is dependent on the life of the proprietor. Illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain.
iv. Limited size - There is a limit beyond which it becomes difficult for a sole proprietor to expand the business activities. It is not possible for a single person to supervise and manage the affairs of the business if it grows beyond a certain limit.
v. Lack of managerial expertise - A sole proprietor may not be an expert in every aspect of management. He/she may be an expert in administration, planning, etc., but may be weak in marketing. Again, because of limited financial resources it is also not possible to employ a professional manager. Thus, the business lacks benefits of professional management.
4.2 The Partnership
 A partnership is an unincorporated business that is carried on by two or more people who intend to share the business profits. Partnerships have at least five important features
 A partnership can be created by an express agreement or it can be created if the people are simply acting in a way that seems like a partnership.
 The partners can be held responsible for the actions and business debts of the other partners.
 All the assets of the business are personally owned by the partners.
 There are two main types of partnerships: general partnerships, where all the partners share the profits and losses of the business; and limited partnerships, where the limited partners are not involved in the daily operations and are only responsible for losses up to the amount they contributed to the business.
 Partners are not considered employees of the business. Because of this, partners are not eligible for employment insurance if the business fails
 Each partner contributes
 Property
 Money
 Labour, and or

34
 Skills
4.2.1 Advantages of Partnership
i. Partnership allows two or more people to work together and bring different skills and resources to the business.
ii. A partnership is fairly easy to establish. The actual registration of a partnership is not expensive or complicated. However, it is a good idea to decide how the partnership will be run and put it into a partnership agreement
iii. If the partnership suffers a loss but the partners have other employment income, the loss can be used to reduce their taxable income, thereby lowering the income tax payable by the partner.
4.2.2 Disadvantages of Partnership
i. The partnership is not considered to be separate from its owners; the partners are personally responsible for liabilities of the partnership. If the business fails, the partners will be personally responsible to pay all of the debts and obligations of the partnership
ii. Each partner is an agent for the business and for the other partners; each partner is personally responsible for the actions of the other partners. If one of the partners makes a bad business decision, or acts negligently which results in the partnership owing a debt, all of the other partners are personally responsible to pay it back.
iii. A partnership is based on the individual partners, and it is not a separate legal entity, if one of the partners dies, the partnership ends. This means that the remaining partners have to re-establish the partnership
iv. Partnership is not a separate legal entity, it is difficult to buy or sell a partnership interest. Buying or selling a partnership interest will involve rewriting the partnership agreement and determining exactly how the partnership will change
v. Although the resolution of disagreements amongst partners is generally covered under a partnership agreement or case law, it usually is very difficult. There is no Act that exists which sets out rules for settling partnership disputes. If the disagreements are not resolved by the partners themselves, they will usually have to turn to outside help which can be time consuming and costly
4.2.3 Partnership agreements
 A partnership agreement establishes rules about how the business is going to be run.
 It usually includes such things as who the partners are, what bank the business will use, how the profits or losses of the business are to be divided among the partners, what the capital contribution of each partner will be, what the role and responsibilities of each partner will be, and how the partnership can be dissolved.

35
 Establishing these business details at the beginning of a business relationship can help avoid disagreements in the future.
 A standard partnership agreement contains the following information:
i. Name and purpose of the partnership
ii. Partners characteristics ,as they can be active ,or not active
iii. Division of income
iv. Division of expenditure
v. Employee management
vi. Business Handling Methods
vii. Terms and Rights of continuing partnership
viii. Regulations and Methods and accounting
ix. Duration of agreement
x. Required and prohibited acts
4.2.4 Types of partners
a. General Partner - A person who joins with at least one other to own and operate a business for profit -- and who (unlike a corporation's owners), is personally liable for all the business's debts and obligations. A general partner's actions can legally bind the entire business
b. Active Partner - is the one who is active in business
c. Secret Partner - someone who is active in the business but not known or disclosed
d. Dormant Partner - A person who is inactive in the business and is not or disclosed as partner
e. Silent Partner - A partner who is inactive in the business but may be known to be a partner
f. Nominal Partner - A person who discloses himself or herself as partner, or permits others to make such representation by the use of his/her name or by other means.
g. Sub Partner - A person who is not member of the partnership but who contacts with one of the partner to participate in the interest of that in the firms operation.
h. Limited Partner - A partner who risks his/her agreed investment in the business. As the long as this does not participate in the management and control of the enterprise

36
4.3. Corporations
 Corporations are one of the three main forms of business.
 The other two main forms of business are sole proprietorships and partnerships.
 The main feature that makes corporations different from sole proprietorships and partnerships is that corporations are legal entities separate from their owners.
 As a result, the corporation is responsible for its own debts, assets, and lawsuits.
 The legal responsibility of the shareholders, directors, officers and employees of the corporation is limited, which means that, with few exceptions, these people cannot be held personally responsible for the debts and obligations of the corporation.
 This is the reason that one of the words Limited, Incorporated, Corporation, or one of their abbreviations must be included in the full legal name of the corporation. These words give notice to the public that the business is a corporation and therefore its owners, directors, officers and employees have limited liability.
 Corporations are owned by shareholders, who own a percentage of the entire corporation through their shares. Shares can generally be bought and sold fairly easily, unless restrictions have been placed on the transfer of shares
4.3.1 Advantages of Corporations
i. The advantage of limited personal liability for the people who own and run the corporation. This means that the shareholders of the corporation cannot be held responsible for the debts and obligations of the corporation unless they provided a personal guarantee. By comparison, in a sole proprietorship or a partnership, the owner or partner is personally liable for all of the obligations of the business. This means that the owner's personal assets, including their home, car, and personal savings can be taken to pay for the debts of the business.
ii. A corporation has an unlimited life. Because the corporation is a separate legal entity, the corporation will continue to exist even if the shareholders die or leave the business, or if the ownership of the business changes.
iii. The corporate form of business makes it easier for a business to grow and expand. Through the issuance of shares, corporations may be able to access the money they will need for expansion. This makes the corporate form of business more suitable for large business ventures than sole proprietorships or partnerships.
iv. There may be tax advantages to running your business as a corporation. Examples of corporate tax advantages are tax deferral strategies and income splitting. Corporate taxation is a complicated matter and it is important that you talk to an accountant or a tax lawyer to determine which tax advantages apply to your situation and how best to structure your business.

37
v. A corporation may appear more stable and sophisticated to the public. This may help you acquire new business
4.3.2 Disadvantages of Corporations
i. First, you will have to file two tax returns, one for the business and one for your personal income. Unlike sole proprietorships and partnerships, any losses from the corporation cannot be deducted from the personal income of the owner.
ii. Second, the registration and set up fees for a corporation are higher than the set up fees for a sole proprietorship or a partnership. Incorporating a business is also a more complicated process than starting a sole proprietorship or partnership. You should contact a lawyer to help you incorporate your business.
iii. Third, the Government requires corporations to maintain proper corporate records, called a minute book. A minute book contains the corporate bylaws and minutes from annual meetings.
 To determine whether you should incorporate your business, you should consult a lawyer who can help you evaluate your specific situation.
4.4 Legal Matters pertaining business ownership
 In any new venture there will be some legal terms which will be guiding the whole process of the venture operation. Concentration will be made on copyrights, trademarks law and patent documents
 Why legal issues?
 Gives fair competition and conducive atmosphere for those parties involved in business competitive environment.
 Provides a room for compensation if the other party infringes their legal rights.
 Legal issues are important to settle any litigation involved in conduct of the business and thus provides a confidence for their entrepreneur to involve themselves into the business with no doubt at all.
 Protect the rights ( Legal rights ) of the owner of an intellectual property against infringement of the same on the other party
4.4.1 Intellectual Property Rights
Include Patents, copyrights and trademarks, as well as trade secrets and related rights. These rights are usually collectively called "intellectual property" or IP.

38
4.4.1.1 Patents
A patent is a legal right to keep others from making, using or selling an invention. This legal right is granted by a government for a limited period of time.
Types of Patents
i. Patents of Invention
 These are probably the most important type of patent.
 Such patents are commonly referred to as simply "patents," but they are referred to as Patents of Invention in this article to differentiate them from the other types of patent discussed below.
 Patents of Invention protect new technology and how new technology works.
 For example, if you make an improvement to an internal combustion engine, a computer, or a can opener, you would most likely seek a Patent of Invention.
 Patents of Invention can protect such diverse things as articles of manufacture, new chemical compounds and methods of making things.
ii. Design Patents
 These protect how things look.
 For example, if you design a new case for a handheld computer and want to protect that new design, then you would seek a Design Patent.
 Design Patents protect the appearance of articles, while Patents of Invention tend to protect how the articles function or how they are made.
iii. Utility Model Patents
 These are similar to Patents of Invention and in some countries they are called Petty Patents.
 Utility Model Patents protect functional aspects of products.
 Utility Model Patents have historically been unavailable for the protection of the processes of making product.
 They differ from Patents of Invention in a number of ways and there is no general rule for distinguishing Utility Model Patents from Patents of Invention other than by the fact that the period of patent monopoly for a Patent of Invention is longer than for a Utility Model Patent.
 In some countries, Utility Model Patents have a lower standard of inventiveness associated with them. In yet other countries, Utility Model Patents have more lenient novelty rules.
 The long and the short of it is that Utility Model Patents tend to protect the same sort of technology as Patents of Invention, but generally offer a shorter period of protection for one reason or another.

39
 In some countries you can get both a Utility Model and a regular patent on the same invention, and the Utility Model can then be important since it often goes to grant faster than a Patent of Invention.
4.4.1.2 Copyright
- Copyright is a form of intellectual property that gives the author of an original work exclusive right for a certain time period in relation to that work, including its publication, distribution and adaptation, after which time the work is said to enter the public domain.
- Copyright applies to any expressible form of an idea or information that is substantive and discrete and fixed in a medium. Some jurisdictions also recognize "moral rights" of the creator of a work, such as the right to be credited for the work. Copyright is described under the umbrella term intellectual property along with patents and trademarks.
- Copyright has been internationally standardized, lasting between fifty to a hundred years from the author's death, or a shorter period for anonymous or corporate authorship. Some jurisdictions have required formalities to establish copyright, but most recognize copyright in any completed work, without formal registration. Generally, copyright is enforced as a civil matter, though some jurisdictions do apply criminal sanctions.
4.4.1.3 Trade Marks
- A trademark or trade mark[1] is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities. A trademark is designated by the following symbols:
i. ™ (for an unregistered trademark, that is, a mark used to promote or brand goods);
ii. SM(for an unregistered service mark, that is, a mark used to promote or brand services)
iii. ® (for a registered trademark).
 A trademark is a type of intellectual property, and typically a name, word, phrase, logo, symbol, design, image, or a combination of these elements. There is also a range of non-conventional trademarks comprising marks which do not fall into these standard categories.
 The owner of a registered trademark may commence legal proceedings for trademark infringement to prevent unauthorized use of that trademark. However, registration is not required. The owner of a common law trademark may also file suit, but an unregistered mark may be protectable only within the geographical area within which it has been used or in geographical areas into which it may be reasonably expected to expand.
 The term trademark is also used informally to refer to any distinguishing attribute by which an individual is readily identified, such as the well known characteristics of celebrities. When a trademark is used in relation to services rather than products, it may sometimes be called a service mark, particularly in the United States.

ENTREPRENEURSHIP MANUAL

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (20)

Similar to ENTREPRENEURSHIP MANUAL

Similar to ENTREPRENEURSHIP MANUAL (20)

More from FLYMAN TECHNOLOGY LIMITED

More from FLYMAN TECHNOLOGY LIMITED (14)

Recently uploaded

Recently uploaded (20)

ENTREPRENEURSHIP MANUAL