What are the Factors that Influence the Form of an Organization?
“While deciding about the form of an organization, various kinds of rules and regulations affecting a particular form are to be considered in detail. ”
There is an unwritten law in the business arena, namely that a stable business concern is bound to draw in more investment. The trained and qualified persons will like to join the concern. The company form of organization is the only form, which ensures stability and continuity.
Sole-trade business may be closed after the death of its owner. Any type of physical and financial problem will force the closure of a business. A partnership firm too does not have a permanent life. It may be dissolved for a number of reasons. Only a company form of organization is suitable if stability of operation is considered to be essential.
A joint stock company has more tax liability as compared to a sole-trade business and a partnership firm. A joint stock company faces double taxation liability. A company is taxed as an individual first and profits that are distributed to shareholders are again liable for tax as income of the recipients.
A partnership concern and a sole-trade business are not separately taxed. While deciding about the form of an organization, various kinds of rules and regulations affecting a particular form are also to be considered. A number of formalities are required to be compiled with while incorporating a company.
A company is expected to provide a large amount of information to the government every year. It has to use the services of experts to meet statutory requirements of various laws.
A sole-trade business is not expected to meet any kind of legal requirements. Similarly, a partnership concern is also free from government regulations. Even the registration of a firm is not compulsory. Nature of the business is another important factor. If the primary aim of a concern is to serve its members, then co-operative societies are most useful.
There is a direct relationship between ownership and management in sole-trade concerns and partnership firms. In company form of organization management and ownership are in two different hands.
The owners (shareholders) are spread all over the country and they do not take active interest in the working of the enterprise. Moreover, shareholders cannot participate in the routine activities of the concern. Only the board of directors is competent enough to take top management decisions in this case.
Author - DeeKay
Tags - Finance, Economy
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