How To Choose Suitable Form of Business
Are you confused with which business is suitable for your business, Then here is the guide to let you select the right form of business for you.
The selection of right form of business is as important for your business as water for life. Problem of selection of suitable business comes in the life of every entrepreneur at the time of starting a new business and also at the time of expansion or diversification of business. This decision influences the success and growth of a business.
Therefore, thoughtful consideration is required to be given to this problem.
The following factors can help you achieve success in choosing the best form for your business:
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Nature of Business:
Nature of business is one of the important factor in choosing the right form. In the small trading businesses, professions, businesses that require personal skills and attention should choose their business as proprietorship firm. Whereas Partnership is suitable for the businesses which require combine efforts and resources and at the marginally high level. Businesses that involve a higher level of production and resources should choose their business as a company.
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Capital need:
This is one of the crucial factors that affects the choice of business form. The scale of Operations is a factor that determines the need of the Capital. The higher the scale of operation the higher shall be need of capital and vice-versa. Therefore the business that need a small amount of capital, the best form for them can be proprietorship or Partnership. Whereas the Businesses that require huge capital investment can go for company.
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Liability:
Proprietor, in case of Proprietorship and Partners, in case of Partnership are personally liable for the debts of the Business. Wherein this is one of the advantage in case of Companies, as a liability of the company is limited to the company itself.
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Area and scale of Operation:
If the area of operation is limited to that of a particular area or locality only, then proprietorship should be chosen, same as with scale of operation. In case the area of operation is larger than as suggested for proprietorship then one can choose the partnership and if area of operation caters national as well as international market then suggested form should be company.
if scale of operation is small, then proprietorship shall be suitable form. If scale is neither too small nor too Large, then one can go for partnership, and in case of scale of operations at large level, Company form shall be suitable.
- Management and Control:
In Proprietorship, owner have direct control on the business activities, there is only one person to manage the business. But in case of Partnership, Both management as well as control are shared by Partners. In case of Company, the management and control is entrusted with the Board of Directors of the Company.
- Perpetual Succession:
On the death of proprietor, proprietorship firm dissolves automatically, same as in case of Partnership, in case of unwillingness of continuity of the firm, it may dissolve. But the company is the only structure which enjoys the feature of Perpetual Succession, life of the company does not depend on the life of its promoters. So in case if business is for shorter duration then Proprietorship and partnership can be chosen, and for long business run company form is suitable.
- Applicable rules and regulations for incorporation:
In case of Proprietorship firm, there are no rules for incorporation, also partnership firms are simple to be incorporated. Incorporation of Company is relatively complicated, if compared from above mentioned forms.
