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Small Business: Categories of Small Business Explained

Sukanya Mukherjee -

What Are The Categories Of Small Business?

  • Small-scale businesses are those businesses where you can produce goods and services on a small-scale.
  • It becomes the major source of bringing economic development to the country.
  • Here you need to make a one-time investment in plants, machinery, or even prefer to take the machinery on lease.
  • Few examples of small-scale industries or small businesses in India are pens, candles, chocolate, toothpicks, etc.

Learn about the characteristics of small business

  1. Ownership: Small businesses usually have a single owner. It is also known as a sole proprietorship.
  2. Management: The owner of the small business is taking care of all the management works.
  3. Limited Reach: Small businesses are operated in restricted areas only. So, they may be a local shop, or in an industry located in only one area.
  4. Labour intensive: Small businesses have little dependency on technology. Mostly work with the help of manpower and labour.
  5. Flexible: Small businesses are flexible and open to any sudden changes in an environment like large industries.
  6. Resources: They prefer to utilise immediately available and local resources. They use better natural resources to make limited wastage.

Types Of Small Businesses Structure

  • To decide your company’s structure is one of the most impactful decisions as it will determine the growth and expansion of your business.
  • Never choose randomly any of the business structures, to make the right decision, always first gather all the information regarding business entities and then select the best one.
  • There are mainly five business structures to choose from:

1. Partnership

It is the type of business where the ownership responsibilities are managed by more than one or two. The partnership business is of different categories like limited partnerships, general partnerships, and joint ventures. Limited partnerships are based on the percentage of investment made by each partner. Joint ventures come with limited involvement of each of the partners and works based on time-frame mainly. To run a successful small business in partnerships, you must partner well.

2. Corporation

Here the main person is a shareholder who has the sole responsibility for all the liabilities and debts. Corporations are a kind of well-established business. They are subjected to double taxation and paying costly administered fees. It is a business which is having a sole objective, i.e., the public interest. In short, it is a legal entity.

3. Limited Liability Corporation

It is a small business that is a kind of hybrid between a sole proprietorship and a corporation. Here being the owner of the company, you will get protection from litigation up to a certain extent. The owners of limited liability corporations are considered as members. It is one of the most flexible business structures to adopt when it comes to running small businesses. Secondly, it is inexpensive also.

4. Cooperative

The Co-op business structure is like non-profit organisations. Here, the ones who are making use of the business are known as user owners or member-owners. There is an agreed-agreement done during the start of a business, that each of the partners must give equal input in running the Cooperative form of business. All members who are part of the Co-op must actively participate in the business functions to maintain its stake in the ownership.

5. S-Corporation

The S-corporation attracts more to small business owners as compared to a standard corporation. It provides business owners with a liability of protection and has many appealing taxation benefits. Here, all the income and losses of the business are of the shareholders. It is a part of their tax returns. The terms and conditions in S-corporation which are to be taken care of:

  • S-corporation should not exceed more than 75 shareholders.
  • If husband and wife both are part of S-corporation, it is counted as one shareholder in combination.
  • Only some entities like trust, tax-exempt charitable organisations, certain partnerships can be part of the S-corporation.

Small Business Categories List

Based on capital investment, small businesses are divided into different categories which are the following:

1. Small Scale Business Industries (Before 2006)

They are making investments in fixed assets like machinery and plants, which is not exceedingly more than one crore. For bringing improvement and modernisation in export, almost 5 crores are invested in plants and machinery.

2. Ancillary Small Business Units

These are those units which provide almost half of its products to other businesses for their smooth functioning. It is also known as the parent unit. They are mainly into the production of components, tools, and parts for the parent units.

3. Export-Oriented Business

The industry can achieve the status of export-oriented if its export business exceeds 50% of its manufacturing. They become liable to opt for compensation like grants and bonuses from the government.

4. Small Scale Industries With Women Founders/Owners

A business that is run by the women where they are either alone or having a share capital of 51% in the company. Such businesses can apply for grants from the government or low-interest loans.

5. Tiny Industrial Units

It is that category of small business where the expenditure incurred on plant and machinery does not exceed 25 Lakhs.

6. Small Scale Service And Business

It is that category where a fixed asset investment on plant machinery takes place, too, with a limit of 10 Lakh. In that investment, land and building expenses are not counted.

7. Micro Business Enterprises

It is a small business that runs mainly in small and tiny sectors. Secondly, the investment done on plants and machinery does not exceed 1 Lakh.

8. Village Industries

These industries are run mainly in rural areas. They are involved in the manufacturing of the product or services where utilisation of power is not required. The fixed investment of capital in village industries done a maximum of Rs 50,000.

9. Cottage Industries

It is also known as rural or traditional industries. Know here the cottage industries feature:

  • Organised by private and single resources
  • Use local talent and family Labour
  • Make use of simple instruments
  • Involvement of small capital investments
  • Production of small products
  • Make use of indigenous technology

In Conclusion

Overall, the scope of small business in India is quite vast. It covers significant activities that become a major source of increasing the GDP of the country. The National Taskforce on the development of small and medium also identifies some areas where small business is a success.

Also Read:

1) Best Business In India
2) Best Business In Delhi
3) Best Business In Chennai
4) Best Business In Mumbai
5) Best Business In Kolkata

FAQs on Small Business

Q. What is the difference between small and large businesses?

Ans. The difference between large and small businesses is their financial goal, size, operation, and legal structure. One can operate both small and large businesses in the same market, but when it comes to operating a small business, it serves only a small section of customers having its main focus on niche markets. On the other hand, the large business offers a wide scope of products or services to a wide range of customers.

Q. Why is small business better than large businesses?

Ans. Small business is considered better than big business because of its adaptability and agility. Due to their scale and size, large business is far away from the reach of customers, and longer is the feedback echo travel. On the other hand, if we talk about small businesses, they are successful in making a closer relationship with the customers by giving them better customer service.

Q. How much revenue can a small business generate?

Ans. The small business is making quite good profits in India. Many people are willing to start a small business because it is easy to start and gives good revenue in less time. The retailers are increasing to a great extent in India.