Explain the characteristics of an ideal form of a business organisation? Pg 93
Meaning: -Before selecting a suitable form of commercial organization, entrepreneur[s]will have to consider a number of factors. The choice of the form of commercial organization largely depends upon the following factors.
Following are some of the important features of ideal forms of business organisation:
1. Ease in Formation: - An ideal form commercial organization is one, which can be formed with ease. It should involve the least expense and minimum legal formalities. On this account, the sole trading concern scores over the other forms of commercial organization.
2. Ease in Raising Capital: - Every commercial organization requires capital. Some organization may require less capital. Whereas others may require more capital. When a small amount of capital is required, then the entrepreneur himself can invest. However the amount of capital is large, then Joint Stock Company is the most suitable form.
3. Extent of Liability: - The owner (s) of a business would normally prefer limited liability. In such a case, the joint stock company form of commercial organization is ideal. All other form of organization requires more liability except co-operative society.
4. Business Secrecy: -The sole trader can maintain complete business secrecy. This is because; he undertakes business activities all by himself. However, business secrecy may not be possible in joint stock companies and to a certain extent in partnership firms.
5. Continuity and Stability: - an ideal form of organization should exist for a long period of time. It must not be closed down or wound up within a short period of time. Here a joint stock company and a co-operative society have an advantage over sole trading concern and partnership firm.
6. Flexibility of operations: - Flexibility refers to the ability of the organisation to adjust its activities, depending upon the changed situation. On this account, the sole trading concerns and partnership firms outweigh the joint stock companies.
7. Ownership Management and Control: -As far as possible, there should be a direct relationship between ownership, management and control. Those who manage must have complete control over business matters. On this account, the sole trading concerns and partnership firms outweigh the joint stock companies.
8. Tax Considerations: -An ideal form of commercial organisation should attract minimum tax liability. Here the sole trader scores over the partnership firm and joint stock companies.
9. Minimum Government Regulations: -As far as an ideal form of commercial organisation must be subject to least government regulations. A Joint stock Company is subject to more government regulations, and the sole trader is least subject to such regulations.
10. Bargaining Power: -An ideal form of commercial organisation also needs to have a good bargaining power with the suppliers and customers. The joint stock company may scores over the partnership firm and the sole trading concern in this respect.