It important to choose an appropriate form of organisation to start a business so that it can be managed properly. The factors that determine the choice of the form of organisation are as follows:

i. Initial business setting-up costs should be taken in concerned such as sole proprietorship is the most inexpensive way of starting a business. In case of a partnership, the advantage of less legal formalities and lower cost is there because of the limited scale of operations. Cooperative societies and companies have to be compulsorily registered. Formation of a company involves a lengthy and expensive legal procedure. For the initial cost, therefore, a sole proprietorship is the preferred form as it involves the least expenditure. Company form of organisation, on the other hand, is more complex and involves greater costs.

ii. In case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. In a joint Hindu family business, only the Karta has unlimited liability. In cooperative societies and companies, however, liability is limited and creditors can force payment of their claims only to the extent of the company's assets. Hence, for investors, the company form of organisation is more suitable as the risk involved is limited.

iii. The continuity of sole proprietorship and partnership firms is affected by such events as death, insolvency or insanity of the owners. However, such factors do not affect the continuity of business in the case of organisations like joint Hindu family business, cooperative societies and companies. In case the business needs a permanent structure, company form is more suitable. For short term ventures, proprietorship or partnership may be preferred.

iv. A sole proprietor may find it difficult to have expertise in all functional areas of management. In other forms of organisations like partnership and company, there is no such problem. Division of work among the members in such organisations allows the managers to specialize in specific areas, leading to better decision making. But this may lead to situations of conflicts because of differences of opinion amongst people.

v. Companies are in a better position to collect large amounts of capital by issuing shares to a large number of investors. Partnership firms also have the advantage of the combined resources of all partners. But the resources of a sole proprietor are limited. Thus, if the scale of operations is large, company form may be suitable whereas for medium and small-sized business one can opt for partnership or sole proprietorship. Further, for expansion, a company is more suitable because of its capability to raise more funds and invest in expansion plans.

vi. If direct control over operations and absolute decision-making power is required, proprietorship may be preferred. But if the owners do not mind sharing control and decision making, partnership or company form of organisation can be adopted. The added advantage in the case of company form of organisation is that there is a complete separation of ownership and management and it is professionals who are appointed to independently manage the affairs of a company.

vii. If direct personal contact is needed with the customers such as in the case of a grocery store, proprietorship may be more suitable. For large manufacturing units, however, when direct personal contact with the customer is not required, the company form of organisation may be adopted. Similarly, in cases where services of a professional nature are required, partnership form is much more suitable.