Saturday, March 27, 2010

Factors Influencing the Choice of Suitable Form of Organization

(1) Capital Requirement : The capital requirement will depend upon the nature and scale of business. The form of organization should be such that it is able to provide required capital. A sole trading concern will be suitable if capital requirements are less. A Joint Stock Company will be suitable if capital requirement are large. So capital requirement directly influences the choice of the form of organization.

(2) Liability : The liability of owners is unlimited in Sole Trading and Partnership. But in companies the liability of shareholders is limited to the value of shares they have purchased. Hence, when a business involves more risk then company form of organization will be most suitable.

(3) Managerial Needs : If the business is small and fulfills the local needs only then one person will be enough to manage the business. So Sole trading form of business organization will be suitable for such a business. When a business is run on large scale, it will require the services of specialist to manage various departments. The company form of business will be most suitable for such concern. Sole Trading and Partnership can not afford to employ professionally qualified persons.

(4) Continuity : The company form of organization is the only form which ensures stability and continuity. It is not affected by the personal life of its shareholders. A Sole Trading may be dissolved for a number of reasons.

(5) Formation : A company requires services of qualified persons for getting it registered. It involves a lot of money and time for incorporation. On the other hand a Sole Trading and Partnership can be started at any time without going through various legal formalities. They are easy to form.


(6) Government Regulations : A number of formalities must be fulfilled while incorporating a company. A Company is expected to provide a large number of information to the government every year. A Sole Trading is not expected to meet any legal requirements. Similarly Partnership is also free from government regulations.

(7) Ownership and Management : There is a direct relationship between ownership and management in sole trading concern and partnership firms. But in company management and ownership are in two different hands. All the owners (shareholders) cannot participate in day-to-day activities of the concern. The management is in the hands of few elected shareholders known as Board of Directors.

(8) Tax Liability : Various forms of organization are assessed to income tax on different basis. A company has more tax liability as compared to sole trading or a partnership.

We have mentioned above the factors that influence the selection of a suitable form of business organization. It is very important decision because it is very difficult to change the form of organization later on.

7 comments:

Unknown said...

Thnku!

Rajsarkar02910 said...

thanks

Unknown said...

Thank you:)

Unknown said...

Thanks

Unknown said...

Thanks

Unknown said...

Thanks u

Unknown said...

Thanku

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