Explain the factors determining the choice of the form of business organisation.

In order to choose the ideal form of business organisation, one has to depend on various factors like capital, nature of business etc. One can opt for sole proprietorship, if one wants to start small business. Small businesses include small hotels and restaurants, stationery shops, grocery stores, bakeries, dry cleaners, confectioneries, barbers, tailors etc. Sole proprietorship is preferred in small businesses because such businesses function on small scale, require a very limited capital and even fulfill the needs of a limited market or less number of customers. In small businesses, owners themselves can tackle the managerial supervision and he can only be his own boss and an active manager.

If the business is carried out on a large scale, partnership form of organisation proves to be the best. Partners act as entrepreneurs and pool their skills, capital and experience in the business. Large businesses include auto workshops, large hotels, large scale retail houses and medium scale industrial organisations. Each partner in a partnership firm is specialized in a particular activity. The organisation is looked after by each and every partner.

For medium scale business operations and where the risk involved is quite significant, the choice of private company solves the purpose. Private limited companies are organised in transport undertakings organised in hire purchase units, medium scale manufacturing companies, finance and leasing companies etc. Capital requirements are larger in such undertakings.

In enterprises, where the scale of operation is large, public limited company is said to be the most suitable form of organisation (for them). Multiple shops, large transport undertakings, large scale manufacturing plants, departmental stories, engineering and electronic companies etc. are organised on the basis of public limited company.

Cooperative form of organisation is used largely for consumers, producers, farmers etc. When the interest of a particular segment of society is to be promoted, the cooperative form of organisation proves to be the best. By going through these factors, one can make a choice of a particular form of organisation.