Once an entrepreneur decides to set up a business, he faces the option to choose between various forms of organization – starting from Sole Proprietorship to Partnership firm, Joint Hindu Family Business, Private Limited Company and Public Limited Company. Each form of business organization has its own set of advantages, disadvantages and features that must be explored and understood before taking a decision.

Selection of the right form of business organization is imperative for longevity of the business. While the right choice of form facilitates efficiency in business functions, a mess up in this regard may lead to gross mismanagement issues. The form of organization for any business determines its focal point of responsibility, power and control and the extent of role enjoyed by the entrepreneur in the organization. It determines the e-

xtent of risk the entrepreneur faces and the method of division of profit or loss to be followed.

Selection of form of business depends upon many overlapping and mutually influencing factors. First and foremost, the nature of business largely decides the form of business organization. For example, all professionals and enterprises rendering direct specialized services are better suited for sole proprietorship or partnership firms than any other form. On the same lines, large scale of operations also dictates that the organization should be either a private or public limited company. An entrepreneur desiring maximum control over his company must go for sole proprietorship. Capital requirement in a sole proprietorship or partnership firm is much less than a private limited company or public limited company. The tax liability also varies with the form of organization.