Discuss the various factors which should be kept in mind while choosing an appropriate form of organisation
Answers
Answer:
1. Nature of business activity:
This is an important factor having a direct bearing on the choice of a form of ownership. In small trading businesses, professions, and personal service trades, sole-proprietorship is predominant.Examples are Laundromats, beauty parlours, repair shops, consulting agencies, small retail stores, medicine, dentist accounting concerns, boarding-house, restaurants, speciality ships, jobbing builders, painters, decorators, bakers, confectioners, tailoring shops, small scale shoe repairers and manufactures, etc. The partnership is suitable in all those cases where sole proprietorship is suitable, provided the business is to be carried on a slightly bigger scale.
2. Scale of operations:
The second factor that affects the form of ownership organisation is the scale of operations. If the scale of operations of business activities is small, sole proprietorship is suitable; if this scale of operations is modest — neither too small nor too large — partnership is preferable; whereas, in case of large scale of operations, the company form is advantageous.
3. Scale of operations:
The second factor that affects the form of ownership organisation is the scale of operations. If the scale of operations of business activities is small, sole proprietorship is suitable; if this scale of operations is modest — neither too small nor too large — partnership is preferable; whereas, in case of large scale of operations, the company form is advantageous.
4. Degree of control and management:
The degree of control and management that an entrepreneur desires to have over business affects the choice of ownership organisation. In sole proprietorship, ownership, management, and control are completely fused, and therefore, the entrepreneur has complete control over business. In partnership, management and control of business is jointly shared by partners.
5. Degree of risk and liability:
The size of risk and the willingness of owners to bear it is an important consideration in the selection of a legal form of ownership organisation. The amount of risk involved in a business depends, among other, on the nature and size of business. Smaller the size of business, smaller the amount of risk.
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