This document discusses factors to consider when choosing a business organization structure. The key factors include the nature of business activities, capital requirements, managerial ability, degree of control, risk and liability, stability, flexibility, and costs. Common business structures are sole proprietorship, partnership, limited liability partnership, and companies. Companies require more capital but provide more stability and limited liability. The nature of operations, scale, and management needs determine whether a sole proprietorship, partnership, or company is most suitable.

1. Choice of business
organization
Chapter 1

2. Learning Objectives of chapter
• There are some factors which drive the
combination of factors
• They are
• Nature of activity ,Capital requirement ,
degree of independence and etc.
• We shall examine the factors which are taken
into account when choosing a form of
business organisation.

3. Types of Business Entity
1. Sole proprietorship
2. Partnership
3. Hindu undivided family
4. Limited liability partnership
5. Branch office
6. Cooperative societies
7. Company

4. Types of Company
1. One person company OPC
2. Private limited
3. Public limited
4. Guarantee Company
5. Subsidiary company
6. Statutory Company
7. Insurance company
8. Unlimited company

5. Factors Governing the decisions for
suitable form of organization
• Nature of business
activity
• Scale of operations
• Capital requirements
• Managerial ability
• Degree of control of
management
• Degree of risk and liability
• Stability of business
• Flexibility of
administration
• Division of profit
• Costs , procedure and
government regulation
• Tax implication
• Geographical mobility
• Transferability of
ownership
• Managerial needs
• Secrecy
• Independence

6. Nature of Business activity
• This is the most important factor in choice of
business organization.
• If so in small trading Sole proprietorship is
most suitable in case to increase in scale of
business can be done with the help of one
more owner(partner).
• Partnership is advantageous in for
manufacturing on a modest scale, finance and
trading and also for consulting agencies etc.

7. • Service enterprises like hotel , lodges , small scale
manufactures.
• Companies
• Business like large chain stores with high capital
and working capital requirements function as
company
• OPC
• When a person doesn’t want to liquefy the can
opt the one person company
• This type of company is the new and hybrid form
of company combined of sole proprietorship and
company

8. • LLP
• This is the type of partnership
• Main feature of this form is that Limited
liability and liability doesn’t fall on the
partners
• They are liable only to their proportionate to
the capital.

9. Scale of Operations
• Small
• Neither too small nor
too large.
• Large
• Sole proprietorship /
one person company
• Partnership /limited
liability partnership.
• Company

10. Capital Requirements
• This is the very crucial factor which declares
the type of organization.
• The thing which requires high amount of
investment needs to be as companies.
•

11. Managerial Ability
• Sole proprietorship must have to expertise in
all functional area of management .
• Company form of organization is a better
alternative if the operations are flung ,
complex in nature and require professionals
management at various levels.

12. Degree of control of Management
Types of organization Degree of control
Sole proprietorship /
one person company
Partnership
Company
100%
50% * depends upon the
no. of partners
The control lies only with
the Board of directors

13. Degree of Risk and Liability
Types of organization Degree of Risk and liability
Sole
proprietorship/OPC
Partnership
Company
Less when compared to
partnership
High risk when compared to
sole proprietorship.
It had got the major advantage
risk and liability

14. Stability of Business
• Sole proprietorship – Ends with proprietor life.
• Partnership - Ends with insolvency,
withdrawal , retirement ,
Admission.
• Company - it is the most stable form
because of the feature

15. Flexibility of administration
• Sole proprietorship – flexible and any change
can be easily effected
with less time and
minimum Loss.
• Partnership – some what tough when
compared to SP*
• Company - highly inflexible and the changes
effected also may cause loss

16. Division of Profit
• Sole proprietorship – all the profits are only to
the proprietorship and
also the liability.
• Partnership - the profits are shared
among the partners .
• Company - the profits are shared as
dividends

17. Costs , Procedure and Government
regulation
• Sole proprietorship - very less procedure and
no registration is required
• Partnership – the registration is not
Mandatory but advisable.
• Company – has many complex procedure to
be followed , time consuming , and expensive.

18. • Further Notes Refer the hard copy