Selection
of form of Organization
A person can start and set up a business enterprise in several forms.
Different forms of organization have their respective merits and
demerits. An entrepreneur can choose the form of business depending on
the various advantages and disadvantages of the various forms of
business.
It is important to select the right form of organization while setting
up a business enterprise. This is so, because it determines:
- Responsibility, power and control of the entrepreneur on the
organization
- Risk of the entrepreneur
- Method of division of profit and loss
Therefore utmost care should be taken before registering the
business as a particular form of organization.
The selection of the form of business is dependent on several
interrelated and interdependent factors including:-
- Nature of the Business: Enterprises / professionals
providing direct services including restaurants, doctors, lawyers,
accountants etc are generally formed as sole proprietorship or
partnership firms. Medium and large manufacturing companies are
generally formed as public or private limited companies.
- Scale of Operations: Medium and large scale companies,
catering to domestic and international markets are successfully
organized as private / public limited companies. Medium and small
scaled companies are better organized as sole proprietorship firms
or partnership firms. Similarly companies spread across different
regions in a particular country are formed as private / public
companies.
- Degree of Control Desired: An entrepreneur who wants a
direct and maximum control on the organization can set up his
company as a sole proprietorship. A company has a separation of
ownership and management.
- Capital Requirement: A business can be changed from sole
proprietorship / partnership to a private public limited company as
the capacity increases and also with the growth of the organization.
- Comparative tax liability
Send your service requirements.
