This document discusses factors to consider when choosing a business organization structure. It notes that sole proprietorships are best for businesses providing direct services that require personal attention. Partnerships are well-suited for businesses that require pooling of skills and funds. Large companies requiring specialized knowledge and management are better as joint stock companies. The size and area of operations, desired control level, capital needs, risk tolerance, surplus division needs, operational flexibility, and regulatory environment should all be examined to determine the optimal structure.

1. CHOICE OF THE FORM
OF
BUSINESS ORGANIZATION

2. 1. NATURE OF BUSINESS :
 Business providing ‘Direct Services’ –
Personal attention to customers and
Self knowledge are the key areas.
therefore better organized as Sole-
Proprietorship.
Salons, Tailors, Restaurants, etc.

3.  Business activities like trading of stock,
medicine wholesale trade, servicing
clients relating to tax dealings, etc where
pooling of skills & funds are required,
are better organized as Partnership Firms.

4.  Manufacturing concerns of large size,
Market-Research enterprises, Service
rendering concerns, which require
specialized knowledge, higher level
skills and management expertise, are
better organized as Joint stock Company.

5. 2. SIZE & AREA OF OPERATIONS :
 Large scale enterprises - better organized as
private / public companies.
Need for large financial resources and
specialized management resources.
Departmental stores, FMCG Enterprises
catering to national & international
market, industrial equipments
manufacturers, etc.

6.  MEDIUM SCALE ENTERPRISES –
Catering to local markets are better
organized as Partnership firms.
Salons, FMCG/ Consumer durables
distributors, Law firms, etc.
Pooling of capital and expertise,
availing benefits of specialization.

7.  SMALL SCALE ENTERPRISES –
Limited areas of operation,
low risk and management problems
can be easily handled, low capital.
Better organized as
sole proprietary concerns.
Retailers, trading in jewelleries,
ancillary industries, etc.

8. 3. DEGREE OF CONTROL
DESIRED :
 Person desiring to have direct control
over business activities;
Proprietorship is preferable.
 If the priority is specialization,
division of labor, professionalization
of management, Corporate form is
preferable.

9. 4. AMOUNT OF CAPITAL :
 Enterprises requiring heavy investment –
Corporate form is preferable.
 Amount of capital is also influenced by
desires for expansion and diversification.

10. 5. DEGREE OF RISK
ASSOCIATED WITH
NATURE OF
LIABILITY

11.  Volume of risk and willingness of owners
to bear such risk influence choice of the
form of enterprise.
 Risks tagged with nature of liability also
determines the choice of form of enterprise.
E.g., An enterprising individual willing
to bear unlimited liability, may set
up proprietary form of business
enterprise.

12. 6. DIVISION OF SURPLUS :
 Amount of surplus to be shared by a
business owner along with nature of
liability influence the choice of the
form of enterprise.

13. 7. FLEXIBILITY OF
OPERATIONS :
 Business which require high degree of
administrative flexibility – better
organized as proprietorship or partnership.
 In corporate form of enterprise, objectives
and powers cannot be changed without
legal formalities.

14. 8. GOVERNMENT REGULATION :
 Proprietorships and Partnerships are
subject to little regulation by the
Government.
 Companies and Cooperatives are subject
to several regulatory mechanism enacted
by the Government.