What fixes the Structure of a Company?
“Social conditions, ego considerations and political atmosphere play an important role in the structure formulation of companies. ”
Structure of a company is dependent upon many factors and preferences. In theory a lot many structures are possible than what are prevalent in practice. Social conditions, ego considerations and political atmosphere play an important role in the structure formulation of companies.
When investors want to retain management in their own hands, partnership or sole-trade form of organization becomes suitable. If the investors do not have much time for business and want to make investment only, the company form of organization fits well into the scheme of things.
The nature and extent of formalities required at the time of establishing a concern also influence the decision about the form of organization. A joint stock company requires the service of qualified persons for getting it registered.
It involves a lot of money at the time of incorporation too. On the other hand, a sole trade business can be started at any time without going through various formalities. In case of a company, if the owners are not ready to go through various formalities they are unable to start it.
A good form of organization should also provide for flexibility in its operations. It should be possible to change or adjust its operations with the change in circumstances.
A sole-trader has absolute power over the affairs of his business and is able to introduce changes quickly to meet the need of changing time and situations without involving lavish expenditure.
Another important factor is stability and continuity of operations. The discontinuation of business causes wastage of resources and is a source of inconvenience to the consumers as well. This scenario is also responsible for considerable social loss.
The company form of organization offers the maximum stability, as it is not affected in any way by the death or insolvency of its members. On the other hand, a sole-trade business comes to an end on the inability or death of the proprietor. A partnership firm also suffers from uncertainties of duration because it can be dissolved at the time of death, insolvency or lunacy.
In a nutshell, it can be said that various company structures have their own advantages as well as negative points and it depends upon the prevalent conditions as far as the choice of a particular company structure goes.
Author - DeeKay
Tags - Finance, Economy
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