How You Should Select The Suitable Form of Business

Not all businesses are the same. From the way to cater the customers to the taxation system; there are many factors according to which the businesses are categorized. However, each and every type of business has its own advantages and disadvantages.

So before selecting the category for your enterprise; you need to consider all the advantages and disadvantages and find out how they will work for your company. Moreover, you need the expert advice of the Chartered Accountant in India to understand the legal and financial aspects of all the categories.

Here we will discuss all the important factors that you should consider while selecting the most suitable form of business that supports your optimal growth.

• Formation Cost: If you check the initial cost of the business, then the sole proprietorship is the most affordable form to set up the business. You need to do minimum legal formalities for the sole proprietorship and partnership as the scale of operation is limited. The company formation process is a very lengthy and expensive legal process. So, if you can find the shortest route, you will save some money.

• Liability: In the case of proprietorship and partnership, the liability is unlimited. To clear the debt; they can pay from their personal assets. On the other hand, for the companies and cooperative societies, there is limited liability. In case of debt, the company cannot pay the debt; the creditors can extent up to the company’s asset to get the payment back. So, the risk is much less for the company formation of the business.

• Continuity: For short term or temporary phase of business, it is a good option to have sole proprietorship or partnership as the formation and dissolution are quite easy for them. However, if you look for continuity and stability, then it is not a good option as it can be easily affected by the insolvency, death, and insanity of the proprietors. On the other hand, these types of events don’t affect the cooperative society or company.

• The requirement of capital: For the choice of the form of business, the capital fund plays a vital role. The companies can collect funds through the shares. Even the partnership firms have the advantages to collect funds by combining the partners’ resources.

However, the sole proprietorship has some disadvantages of the limited resources. As per the Chartered Accountant, if the investors have a large scale of business, then the company formation is the best and for the medium or sole proprietorship, small and medium-size businesses can bring the best result. 

• Managerial Skill: There are many managerial functions in a company and it is quite obvious that the sole proprietor will not be an expert in every skill. It is very difficult for them to manage everything single-handedly. On the other hand, the partnership and the company don’t face such a problem as all the members and partners have their own share of responsibility. It will lead to a better organized and decision making phase. On the other hand, conflicts of opinion are also very common for the company, partnership, and cooperative society.