Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.
Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.
The choice of an appropriate form of business organisation is important for the following reasons.
(a) Options to choose among various business forms: As there exist numerous forms of business organisations such as sole proprietorship, partnership, cooperative society and company, the choice of an appropriate business organisation is important, because each business form has its own merits and demerits.
(b) Business factors: Every type of business form is influenced by its respective business-related factors, namely, need of funds, risk involved, amount of profits and legal obligations. Therefore, the choice of the appropriate business form is made only after the evaluation of all these business factors.
(c) Long-term growth prospects: The growth prospects of each type of business form are different. If a businessperson opts for a particular business form without correctly evaluating the growth prospects, then the business may fail or the long-term growth prospects of the business will suffer.
Factors determining Choice of a Business Form
The following are the factors that determine the choice of a business organisation.
(a) Nature of business activity: Any individual first needs to decide upon the nature or kind of business activity that he or she desires to undertake. In case the business type requires direct personal contact with customers, then the sole proprietorship form of business proves beneficial. On the other hand, if direct personal contact is not required, then a partnership or a company form of business is more suitable.
(b) Degree of control: The choice of a business form also depends on the degree of control that a businessperson wants to exercise over its management. If a businessperson aims to have direct control over all the business operations, then sole proprietorship may be considered appropriate. However, if he or she does not mind sharing the decision-making powers with others, then a partnership or company form of business would be more suitable.
(c) Degree and specialisation of managerial abilities: If the business operations are large and require specialised and skilled professionals for managing them, then a company form of business may be selected. However, if the business operations are not very complex and the scale of operations is also not very large, then sole proprietorship proves to be a better alternative.
The choice of an appropriate form of business organisation is important for the following reasons.
(a) Options to choose among various business forms: As there exist numerous forms of business organisations such as sole proprietorship, partnership, cooperative society and company, the choice of an appropriate business organisation is important, because each business form has its own merits and demerits.
(b) Business factors: Every type of business form is influenced by its respective business-related factors, namely, need of funds, risk involved, amount of profits and legal obligations. Therefore, the choice of the appropriate business form is made only after the evaluation of all these business factors.
(c) Long-term growth prospects: The growth prospects of each type of business form are different. If a businessperson opts for a particular business form without correctly evaluating the growth prospects, then the business may fail or the long-term growth prospects of the business will suffer.
Factors determining Choice of a Business Form
The following are the factors that determine the choice of a business organisation.
(a) Nature of business activity: Any individual first needs to decide upon the nature or kind of business activity that he or she desires to undertake. In case the business type requires direct personal contact with customers, then the sole proprietorship form of business proves beneficial. On the other hand, if direct personal contact is not required, then a partnership or a company form of business is more suitable.
(b) Degree of control: The choice of a business form also depends on the degree of control that a businessperson wants to exercise over its management. If a businessperson aims to have direct control over all the business operations, then sole proprietorship may be considered appropriate. However, if he or she does not mind sharing the decision-making powers with others, then a partnership or company form of business would be more suitable.
(c) Degree and specialisation of managerial abilities: If the business operations are large and require specialised and skilled professionals for managing them, then a company form of business may be selected. However, if the business operations are not very complex and the scale of operations is also not very large, then sole proprietorship proves to be a better alternative.
