A business is an economic entity that engages in activities for financial gain or profit. The structure of a business in terms of the ownership and management is one of the important tasks of the entrepreneur. Therefore, the form of organization must be chosen with careful thought. Factors to be considered are:
The Nature of the activities of the Business
The selection of a particular type of organizational structure is dependent upon the type of business activity. A partnership or Sole Proprietorship is ideal for a service oriented business, but a Company or partnership would be better for a manufacturing concern.
Scale of Operation
If the scale of operation is small, a sole proprietorship or partnership form is ideal. But a company would be better if the scale of operation was very large.
Area of Operation
If the operation of entity is spread over a wide geographic area, the company structure is better, but if it is confined to a specific region, other forms may be ideal.
If the initial capital outlay and daily operational costs are very large, a company structure may be the best option.
Ownership and Control
One should go for a sole proprietorship or partnership when direct control over the business is ideal, instead of company or co-operative Structure.
An individual who does not wish for unlimited liability, he may opt for a company but if he can bear the unlimited liability of business can go for sole proprietorship or partnership.