How to choose my business?
The form of business is very important and crucial as it is connected with your growth strategy and flexibility. When business starts to grow, you should not be limited with various complications as to how to execute a particular strategy or moving/ winding down current business form should not become a roadblock etc.
A business can be owned and organized in several forms. Each form has its own merits and demerits. The ultimate choice depends upon balancing the advantages and disadvantages of the various forms. The right choice is very crucial because it determines the power, control, risk and responsibility of the entrepreneur as well as the division of profits and losses.
Few factors that you should consider before making a choice of right business entity are:
- The nature of business is the most important factor. Businesses providing direct services like tailors, restaurants and professional services like doctors, lawyers are generally organised as proprietary concerns. While, businesses requiring pooling of skills and funds like accounting firms are better organised as partnerships. Manufacturing organisations of large size are more commonly set up as private and public companies. Information technology companies have been typically associated with private limited and more recently startups are going ahead with LLP.
- Scale of operations i.e. volume of business (large, medium, small) and size of the market area (local, national, international) served are the key factors. Large scale enterprises catering to national and international markets can be organised more successfully as private or public companies. Small and medium scale firms are generally set up as partnerships and proprietorship. Similarly, where the area of operations is wide spread (national or international), company ownership is appropriate. But if the area of operations is confined to a particular locality, partnership or proprietorship will be a more suitable choice.
- The degree of control desired by the owner(s). A person who desires direct control of business, prefers proprietorship, because a company involves separation of ownership and management.
- Amount of capital required for the establishment and operation of a business. A partnership may be converted into a company when it grows beyond the capacity and resources of a few persons.
- The volume of risks and liabilities as well as the willingness of the owners to bear it, is also an important consideration.
- Comparative tax liability.
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