Choice of business organisation The important factors determining the choice of organization are:-
1. Cost and Ease of formation:-
From the point of view of cost, sole proprietorship is the preferred form as it involves least expenditure and the legal requirements are minimum. Company form of organisation is more complex and involves greater costs.
2. Liability:-
In case of sole proprietorship and partnership firms, the liability of the owners/ partners is unlimited. In cooperative societies and companies, the liability is limited. Hence, from the point of view of investors, the company form of organisation is more suitable as the risk involved is limited.
3. Continuity:
The continuity of sole proprietorship and partnership firms is affected by death, insolvency or insanity of the owners. However, such factors do not affect the continuity of cooperative societies and companies. In case the business needs a permanent structure, company form is more suitable.
4. Management ability:
If the organisation’s operations are complex in nature and require professionalized management, company form of organisation is a better alternative.
5. Capital:
If the scale of operations is large, company form may be suitable whereas for medium and small-sized business one can opt for partnership or sole proprietorship.
6. Degree of control:
If direct control over business and decision making power is required, proprietorship may be preferred. But if the owners do not mind sharing control and decision making, partnership or company form of organisation can be adopted.
7. Nature of business:
If direct personal contact is needed with the customers, Sole proprietorship may be more suitable. Otherwise, the company form of organisation may be adopted.
