Question

Discuss the importance of selecting the appropriate business organization form at the inception of a business. Why is the form of business organization of vital importance to a business successfully moving forward?

Answer 1

There are different business organization form which can be adopted during inception like Corporation, Sole proprietorship, Partnership etc. All these have their advantage and disadvantage in terms of risk, profit sharing, administrative control, fund raising etc.

It is very crucial to select the correct form since inception as:

• It helps to choose the correct strategy from the beginning. Example: The plan is to expand the business 5 fold in next 3 years, then partnership is essential as it increases more chance of fund raising and collaborating
• It helps to provide direction on achieving vision and mission. Example: Company targets to have multiple stakeholders, then corporation can be right move to raise fund from market
• It helps to avoid confusion and conflict later one which otherwise may pop up if organization plans to change the form
• It helps to build trust and confidence in market about the company and enhances value
• It increases morale and motivation of employees working for the company