Selection of form of Organization

Sole Proprietorship	Private Limited Company
Public Limited Company	Joint Hindu Family Business

A person can start and set up a business enterprise in several forms. Different forms of organization have their respective merits and demerits. An entrepreneur can choose the form of business depending on the various advantages and disadvantages of the various forms of business.

It is important to select the right form of organization while setting up a business enterprise. This is so, because it determines:

• Responsibility, power and control of the entrepreneur on the organization
• Risk of the entrepreneur
• Method of division of profit and loss

Therefore utmost care should be taken before registering the business as a particular form of organization.
The selection of the form of business is dependent on several interrelated and interdependent factors including:-

• Nature of the Business: Enterprises / professionals providing direct services including restaurants, doctors, lawyers, accountants etc are generally formed as sole proprietorship or partnership firms. Medium and large manufacturing companies are generally formed as public or private limited companies.
  
  
• Scale of Operations: Medium and large scale companies, catering to domestic and international markets are successfully organized as private / public limited companies. Medium and small scaled companies are better organized as sole proprietorship firms or partnership firms. Similarly companies spread across different regions in a particular country are formed as private / public companies.
  
  
• Degree of Control Desired: An entrepreneur who wants a direct and maximum control on the organization can set up his company as a sole proprietorship. A company has a separation of ownership and management.
  
  
• Capital Requirement: A business can be changed from sole proprietorship / partnership to a private public limited company as the capacity increases and also with the growth of the organization.
  
  
• Comparative tax liability