How to Choose a Suitable form of Organization for Your Business?
“The main consideration should be the certainty regarding maximum availability of funds for the business and the organizational setup should be selected primarily on these lines. ”
Once you have selected a particular form of organization for your business and have taken care of all the prerequisites, it is very difficult to switch over to some other form afterwards.This decision should not only be based on present considerations but future possibilities should also be taken into account. Foresightedness is an important ingredient of any successful business.
The first step in this direction is the need for capital. It depends upon the nature of business and the scale of operations. For example, average manufacturing businesses require a lot more capital than say, the average retail businesses. On the other hand if the scale of operations is large, capital requirement is also more.
After determining the capital needs, the form of organization should be selected. The main consideration should be the certainty regarding maximum availability of funds for the business and the organizational setup should be selected primarily on these lines. For example, a sole-trade business is suitable if capital needs are less.
On the other hand, partnership concern is suitable for the capital needs of a medium size unit and a joint stock company has to be formed if the capital needs and constraints are of a high level.
Not only this, provision should be made in every kind of organization that funds from various kinds of outside resources are also available at times of need.
In partnership business the responsibility of businessmen is unlimited. Their liabilities are limited to the capital they have invested but their private property can also be assigned to meet business obligations.
In case of companies the liability of shareholders is limited to the value of shares that have been purchased by them. The shareholders are required to pay only the unpaid amount of shares they are having. Their private property and assets cannot be involved in such matters.
Managerial and administrative requirements also affect the decision about the form of organization. For example, sole-proprietorship is very suitable when the company is small and is concerned about the needs of a small local area. In such a case, usually a single person can manage all the affairs of the company.
Author - DeeKay
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