unit-3-forms-of-business-organization-ii

Unit-3 Forms Of Business Organization II

In this unit you will learn about the requisites of a good form of organisation, compare the four forms of organisations.

Explain the features of an ideal form of business organisation. Which form can be considered to be an ideal in all respects?

{{currentAnswerList.length}}   Answers

1   Answers

















































































{{ans.user.userName}}

Written on {{ansDate($index)}}

{{trustHtmlContent(ans.answerContent)}}





Learning Pundits Content Team

Written on Apr 15, 2019 5:40:08 PM

  1. Ease of formation: An important factor for preferring a particular form of organisation is the ease with which a business can be brought into existence. It depends on three factors: (i) formation expenses by way of registration fee, stamp duty, fees of legal experts, etc., (ii) legal formalities, (iii) procedural delays.
  2. Scope of raising capital: The choice of organisation depends on the amount of capital required which is determined by the nature of business. E.g. if we want to open a retail shop in groceries, the amount of capital needed will not be much but for sugar factory a large amount of capital is needed.
  3. Extent of liability: Limited liability is considered as an important feature of a good form of organisation. A certain amount of risk is found to be important to provide the needed spur for initiative, drive and involvement in business.
  4. Flexibility of operations: The form of organisation should be very flexible and adaptable to changing business conditions without much difficulty or complication.
  5. Stability and continuity: Stability and long life of business is desirable from the point of view of owners, employees and customers. The owner should be able to formulate plans for the future. Regular supply of goods and services is expected to meet customers’ needs.
  6. Effectiveness of management: The success of any business enterprise depends on the efficiency of management. Managerial efficiency depends on skills, motivation, flexibility, adaptability, etc.
  7. Effectiveness of management: The success of any business enterprise depends on the efficiency of management. Managerial efficiency depends on skills, motivation, flexibility, adaptability, etc.
  8. Business secrecy: It is important to maintain business secrets without leaking them out to competitors. A form of organisation which enables retention of business secrets is preferred.
  9. Tax burden: Business taxes like sales tax, excise duty and customs duty are charged on certain products and services. The form of organisation which attracts the minimum amount of tax liability is considered as an ideal form. From this point of view, company form of organisation is best because it enjoys a number of tax reliefs.
  10. Ownership prerogatives: Some persons have a very strong desire to control the entire business themselves, some persons are desirous of sharing the responsibilities, some people may want to own a part of the capital without a strong desire to control the business and some persons are not ready to bear the business risk. An ideal form of organisation takes care of such prerogatives of the owners.


There are four basic forms of organisations:

  1. Sole proprietorship
  2. Partnership
  3. Company
  4. Cooperative society

Each form is good in some aspects and not good in other respects. So, it is difficult to treat any one form as ideal in all respects.