The size, capital investment, number of employees, volume of output as well as value of output are the general parameters of measuring a business enterprise. A small business is defined as a business which is actively managed by its owners, operating within the local area and relatively small in size. However, the Government of India has considered the fixed capital investment in plant and machinery as the only criteria to define a small industrial unit in India.

Up to the year 1958, an industrial unit in which fixed capital investment was less than Rs. 5 lakh and employing workers of up to 50 if using power, and up to 100 if not using power was considered as a small business. This limit has been changed by the government from time to time. In the year 1960, the employment criterion was dropped.

As per the changes with effect from 21 December 1999 the investment limit in plant and machinery of small scale sector has been raised up to Rs.10 million (one crore). The plants and machinery may be held on ownership basis, on lease or on hire purchase. The limit of rupees one crore is subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking.

Characteristics of Small Business

The main characteristics of small business are:

  1. A small business is usually owned and managed by one or a few persons.

  2. The owners take active participation in day-to-day activities of business.

  3. The participation of owners in the management helps in taking quick decision.

  4. The area of operation of a small business is limited. It generally caters to the need of the local people.

  5. The small business units are generally labour intensive and thus require less capital investment.

  6. It generally uses local resources for its operation. The small-scale manufacturing units are usually located near the source of raw material, labour, etc.

  7. Gestation period (the period that a business waits to get return on its investment) is short.

  8. The operation of a small business is flexible. It can easily change its nature, area of operation, process of production etc. as per the change in social, political and economic conditions.