Abstract: Component-based development (CBD) has become a much talked-about subject today. While the technology of CBD--as exemplified by environments such as EJB and COM--has become increasingly mature, this has not been complemented by corresponding maturity on the methodology front. Of the few published methodologies available for the design of components, most address the process of building systems from a set of pre-built components. However, an important scenario that is left un-addressed is that of the design of custom applications. In such contexts, the CBD design question involves the creation of business components from a set of software requirements. Currently there is no published prescription that addressed this need. At best, practitioners rely on published collections of software patterns or heuristic guidelines such as those advocating correct component granularity. We propose a comprehensive design methodology for identifying two classes of business components based on an object-oriented specification of requirements. These are entity components and process components. The methodology is illustrated with an example, and a real-life case study of an auction site is also described.