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.

You plan to start a business. How would you choose the suitable form of organisation for your business?

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Nature of business: The organisational requirements are different for different types of business. E.g., a big cement manufacturing activity and a retail cement shop cannot have the same form of organisation.
Volume of business: The expected volume of business influences the decision about the suitable form of organisation. If the volume of business is large, we need more capital and run more risk. So, partnership form or a company form would be better.
Area of operation: If the area is limited and confined to a particular locality, sole proprietorship may be the best form. In case the area is widespread, the suitable form may be a joint stock company.
Desire for control: The extent of control and supervision will also determine the choice of organisation. If it is desired to have a direct control over the business operations, a sole proprietorship or a partnership form of business should be adopted.
Capital requirements: A business which requires small amount of capital can be organised on sole proprietorship. But if the financial requirements are huge, then the joint stock company form may be preferred.
Extent of risk and liability: If the promoters of a business enterprise are deterred by the risk involved, they will start the business on the basis of a limited liability. That means they can go for a company.
Government regulations: Governmental controls and regulations are more in company form and cooperative form of organisations compared to the remaining two forms.