What is Small Business? Types of Small Business

Small Business Meaning

A business which functions on a small scale level involves less capital investment, less number of labour and fewer machines to operate is known as a small business.

Small scale Industries or small business are the type of industries that produces goods and services on a small scale. These industries play an important role in the economic development of a country. The owner invests once on machinery, industries, and plants, or take is a lease or hire purchase. These industries do not invest more than one crore. Few examples of small-scale industries are paper, toothpick, pen, bakeries, candles, local chocolate, etc., industries and are mostly settled in an urban area as a separate unit.

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Characteristics of Small Scale Industries

  • Ownership: They have a single owner. So it is also known as a sole proprietorship.
  • Management: All the management works are controlled by the owner.
  • Limited Reach: They have restricted area of operation. So they may be a local shop or an industry located in one area.
  • Labor Intensive: Their dependency on technology is very little because they are dependent on labours and manpower.
  • Flexibility: Because they are small, they are open and flexible to sudden changes, unlike large industries.
  • Resources: They utilize local and immediately available resources. They do better utilization of natural resources and limited wastage.

Categories of Small Business

On the basis of capital invested, small business units can be divided into the following categories:

(1) Small Scale Industry (Before 2006)

  • They invest in fixed assets of machinery and plant, which does not surpass than one crore.
  • For export improvement and modernization, expenditure ceiling in machinery and plant is five crores.

(2) Ancillary Small Industrial Unit

  • This industry can hold the status of an ancillary small industry if it supplies a minimum 50 per cent of its product to another business, i.e. the parent unit.
  • They can produce machine parts, components, tools or standard products for the parent unit.

(3) Export Oriented Units

  • This industry can possess the status of an export-oriented unit if it exports exceeds 50 per cent of its manufactures.
  • It can opt for the compensations like export bonuses and other grants awarded by the government for exporting units.

(4) Small Scale Industries Owned by Women

  • An enterprise operated by women entrepreneurs in which they alone or combined share capital minimum of 51 per cent.
  • Such units can opt for the special grants from the government, with low-interest rates on loans, etc.

(5) Tiny Industrial Units

  • It is an Industrial or a company whose expenditure on machinery and plant does not exceed Rs. 25 lakhs.

(6) Small Scale Service and Business

  • It is a fixed asset investment on machinery and plant excluding land and building should not surplus Rs. 10 lakhs

(7) Micro Business Enterprises

  • It is a tiny and small business sector.
  • The investment in machinery and plant should not exceed Rs.1 lakh.

(8) Village Industries

    • The industries which are located in rural areas and manufacture any product performs any service with or without the utilization of power is called village industries.

They have fixed investments on capital as per head, workers, and artisan, which does not exceed Rs.50, 000.

(9) Cottage Industries

    • It is also known traditional or rural industries.
    • These industries are not covered by the capital investment criterion.

Cottage industries are characterized by the following features :

    1. These are organized by a single, with private resources.
    2. Use family labour and local talent.
    3. Simple instruments are used.
    4. Small capital investment is involved.
    5. Simple products are made.
    6. Indigenous technology is utilised.
Important Topics in Business Studies:


Multiple Choice Question:
Q.1- The maximum limit of investment in plant and machinery in case of the micro industry before the year 2006 cannot exceed:
a. One lakh

b. Five lakh

c. Twenty-five lakh

d. None of the above

Q.2 – An enterprise owned and managed by women is called SSI when the share capital held by a woman is not less than:
a. 100%

b. 40%

c. 51%

d. None of the above

Answer Key
1-a, 2-c

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