Reasons for Choosing a Suitable Form of Business
Cost and Ease of Starting a Business
A sole proprietorship is simple to start in terms of initial business costs and legal requirements; however, because of the limited scope of activities, a partnership also has the benefit of fewer legal formalities and lower costs. For co-operative societies and businesses, registration is required. A lengthy and costly legal procedure is required to form a corporation.
Responsibilities
The owners/partners of sole proprietorships and partnership firms have unlimited liability. This may necessitate the payment of debts from the owners' assets. Liability is limited in cooperative societies and corporations, and the creditors can only demand the payment of their claims up to the value of a company's assets.
Managerial Ability
Having competence in all functional areas of a business is challenging for a lone proprietor. In other types of organizations, such as partnerships and corporations, members divide their labor, allowing management to specialize in specialized areas and make better decisions. However, disagreements over differing viewpoints may occasionally result in conflicts.
Capital Requirements
For big-scale activities, a corporate structure is the best because it can raise a large amount of money by issuing shares. Partnership or single proprietorship are two options for medium and small businesses. Expansion capital requirements can also be handled more simply in the form of a corporation.
Degree of Authority
A sole owner has complete control over his business and can make whatever decision he wants. However, if the owners of sole proprietorships desire to share their ownerships to make more informed decisions, they can join a partnership or a corporation. Because ownerships and management are completely separated in a company form of organization, specialists are appointed to oversee a firm's affairs.