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Requisites of An Ideal Form of Business Organization

The document outlines 10 requisites of an ideal form of business organization: 1) Ease of formation with minimal legal fees and formalities. 2) Ability to raise capital as needed depending on the scale of operations. 3) Provides limited liability to protect owners from full financial responsibility. 4) Flexibility to adapt to changing conditions without difficulty. 5) Stability and continuity for employees, owners, and customers. 6) Effectiveness of management through skilled and motivated personnel. 7) Limited government control and regulations that do not interfere.

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2K views2 pages

Requisites of An Ideal Form of Business Organization

The document outlines 10 requisites of an ideal form of business organization: 1) Ease of formation with minimal legal fees and formalities. 2) Ability to raise capital as needed depending on the scale of operations. 3) Provides limited liability to protect owners from full financial responsibility. 4) Flexibility to adapt to changing conditions without difficulty. 5) Stability and continuity for employees, owners, and customers. 6) Effectiveness of management through skilled and motivated personnel. 7) Limited government control and regulations that do not interfere.

Uploaded by

Kavita Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Requisites of an ideal form of business organization

The requisites of an ideal form of organisation are as follows :

1. Ease of formation: An important factor for preferring a particular form of organisation to another is
the ease with which a business can be brought into existence. The comparative ease of difficulty in
forming a particular form of organisation mainly depends on three factors: {i) formation expenses by
way of registration fee, stamp duty, fees of legal experts, charges involved in the drafting of
documents, obtaining licenses, etc., (ii) legal formalities, and (iii) procedural delays, etc. Unless it is
very essential, it is better to go for an organisation which is easy to form.
2. Scope of raising capital: The choice of organization mainly depends on the amount of capital
required which is determined by the nature of business and the scale of operations. For example, if
you want to open a retail shop in groceries, the amount of capital needed will not be much. But if
you want to set up a sugar factory, you may require a large amount of capitaI. Ideal form of
organisation is one which provides scope for raising the amount of capital as and when required.
3. Extent of liability: You know that the element of risk and uncertainty is prevalent in each business.
In view of this, normally, the businessmen prefer limited liability. Obviously, limited liability is
considered as an important feature of a good form of organisation. However, a certain amount of
risk is also found to be important to provide the needed spur for initiative, drive, and involvement in
business. Many times, the absence of such spur leads to weakness, inefficiency and even dishonesty
on the part of management personnel.
4. Flexibility of operations: The form of organisation should be very flexible and adaptable to changing
business conditions without much difficulty or complication. For example, if you want to expand
your business, diversify or modernize the plant and equipment, the organization should be able to
meet all requirements.
5. Stability and continuity: Stability and long life of business is desirable from the point of view of
owners, employees, and customers. Employees always prefer a stable and continuous employment.
If the business is stable, the owner should be able to formulate plans for the future and to make
investments paying for a considerable length of time. From the customers' point of view also,
regular supply of goods and services is expected to meet their needs. An ideal form of organisation
is one which provides reasonable amount of stability to the business.
6. Effectiveness of management: As you know that the success of any business enterprise depends on
the efficiency of management. Managerial efficiency depends on skills, motivation, flexibility,
adaptability, etc. It is difficult for an individual to possess all these qualities.
7. Extent of government control and regulations: If the governmental control and regulations are too
many, the enterprise may have to divert a lot of time, money and energy for complying with legal
formalities and instructions. In some cases there may be too much interference by the government
officials in the day-to-day business of the firm. No doubt, the investors, creditors, and customers
trust the business enterprises whose activities are properly regulated by the government. But too
much government interference is not favored by the entrepreneurs because it mars their initiative
and disrupts the working of their business.
8. Business secrecy: In business, it is important to maintain business secrets without leaking them out
to competitors. Therefore, a form of organisation which enables, retention of business secrets is
preferred to the one wherein business secrets are difficult to preserve.
9. Tax burden: Business taxes like sales tax, excise duty, and customs duty are charged on certain
products and services. Hence, such taxes affect all forms alike and they will not affect the choice. But
the income tax liability is different from one form of organisation I to the other. Naturally, the form
of organisation which attracts the minimum amount of I this tax liability is considered as an ideal
form. From this point of view company form of organisation is considered to be best because it
enjoys a number of tax reliefs which are I I no1 available in case of other forms of organisation.
10. Ownership prerogatives: Some persons have a very strong desire to control the entire I business
activities themselves and place a great value upon their right of personal I leadership. Some persons
are desirous of sharing the responsibilities and risks of a business. Some people may want to own a
part of the capital without; a strong desire to control the affairs of the business. You can also find
some persons who are not ready to bear the business risk. An ideal form of organisation takes care
of such prerogatives of the owners.

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