Factors influencing forms of business formation
In order to come up with a suitable form of business organization, entrepreneurs should diligently weigh the pros and cons involved in various forms of business organizations. This is because no particular form of business organization has the ability to meet all the individual preferences. Small business can take the form of a sole proprietor, partnership, corporation, limited liability company, non-profit organization, S-corporation, and cooperative society (Mancuso, 2010). With the existence of such an array of forms, the best choice of an organization depends on several factors, some of which are business related, tax related, while some relate to legal issues.
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Business related factors include aspects such as ease of formation where we find that sole trade is able to start and withdraw at his own volition (Mann & Roberts, 2008). Conversely, partnership requires mutual faith and trust while companies require numerous legal formalities in the formation process. Availability of resources defines the size of a business organization, but at its core, the best business option is a sole proprietorship. It is however hard for a single person to raise the resources required to undertake a big business. The financial resources of partners are limited, which makes them impossible to raise enough expert knowledge and capital required for the management of big businesses. Licensing plays a key role as it limits the choice of business forms.
The type of business plays a major part in deciding on which form of business organization to establish. Some types of business that require global presence requires more capital than an individual may not raise on his own. The type of business also determines the regulations prevailing in a given industry, thereby affecting the form of business decided on with the aim of mitigating the impact of regulations.
References:
Mancuso, A. (2010). LLC Or Corporation?: How to Choose the Right Form for Your Business. Connecticut: Nolo.
Mann, R. & Roberts, B.S. (2008). Smith and Roberson's Business Law. NY: Cengage Learning
