ADVERTIsem*nTS:
This article throws light upon the top ten factors influencing the choice of business organization. The factors: 1. Liability of Owners 2. Life of Organization 3. Transferability of Ownership 4. Flexibility 5. Tax Liability 6. Legal Formalities 7. Geographical Mobility 8. Scope of Expansion 9. Government Control 10. Centralisation of Management Control.
Choice of Business Organization Factor # 1.
Liability of Owners:
The first crucial factor to be kept in view by an entrepreneur while choosing a form of organization is liability of the owner in meeting the business obligations. Generally, an entrepreneur would prefer a form of organization in which the owner’s liability is limited only to the capital invested by him in the business. He would not like his personal assets to be utilised under any circ*mstances to settle the business obligations.
Choice of Business Organization Factor # 2.
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Life of Organization:
Age of a firm plays crucial role in its growth and success. This is why entrepreneurs prefer a form of enterprise whose life is not linked to the lives of its members so that existence of the organization remains unaffected.
Choice of Business Organization Factor # 3.
Transferability of Ownership:
Another variable influencing choice of the form of organization is freedom of the owner to transfer his ownership in the company to someone else as and when desired. This will facilitate the firm to raise funds from the market.
Choice of Business Organization Factor # 4.
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Flexibility:
Entrepreneurs would like to choose a form of organization which offers the maximum degree of flexibility of making recourse to a variety of sources of funds from the market.
Choice of Business Organization Factor # 5.
Tax Liability:
Tax on earnings is an important cost to an enterprise. An entrepreneur chooses a form of organization which involves lowest tax liability.
Choice of Business Organization Factor # 6.
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Legal Formalities:
Certain procedures have to be followed and formalities need to be complied with for establishing an enterprise. These formalities, as per legal provisions, differ depending on the type of organization to be set up. Obviously, entrepreneurs would like to select that form of organization which enables them to start business with minimum legal formalities and costs.
Choice of Business Organization Factor # 7.
Geographical Mobility:
Another important consideration influencing an entrepreneur’s choice of business organization is geographical mobility. Usually, an entrepreneur likes to select a form of organization that provides freedom and right to conduct business in different regions of the country without much legal complications.
Choice of Business Organization Factor # 8.
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Scope of Expansion:
Entrepreneurs would like that form of organization which provides ample scope for expansion and diversification of business to-exploit emerging market opportunities.
Choice of Business Organization Factor # 9.
Government Control:
Entrepreneurs are loath to choose a form of organization to conduct their business where there always remains a great possibility for governmental interference and control.
Choice of Business Organization Factor # 10.
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Centralisation of Management Control:
The last but not the least factor that influences the decision of an entrepreneur is the extent of control which he will command over the operations of the business. Generally, entrepreneurs prefer such form of organization as enables them to command exclusive control over the business and thereafter delegate it in an orderly manner.
