11th Class Business Studies Forms Of Business Organisation Question Bank Forms Of Business Organisation (Higher)

  • question_answer
    Explain the factors which affect the choice of form of business organization.


    Ans.     The following factors are important for taking decision about form of organization.
    1. Cost and Ease in Setting up of an Organization: Sole proprietorship is least expensive and can be formed without any legal formalities to be fulfilled. Whereas the setting up of an organization or company is very expensive as it requires a lot of legal formalities to be fulfilled.
    2. Capital Consideration: Business requiring less amount of finance hence a person prefers sole proprietorship than partnership firm, whereas business activities requiring huge financial resources or expense prefer setting up of a company form.
    3. Nature of Business: If the work requires personal attention such as tailoring unit hair cutting saloon, it is generally set up as a sole proprietorship. Units engaged in large scale manufacturing are more likely to be organized in company form.
    4. Degree of Control Desired: A person who desires full and exclusive control over business prefers proprietorship rather than partnership or Co. because control has to be shared in these cases.
    5. Liability or Degree of Risk: Projects which are not very risky can be organized in the form of sole proprietorship and partnership. Whereas the risky ventures should be done in company form of organization because the liability of shareholders is limited.

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