Setting Up An Appropriate Business Organisation



Setting Up An Appropriate Business Organisation :

The first and the foremost question you as a prospective exporter has to decide is about the kind of business organisation needed for the purpose. You have to take a crucial decision as to whether the business will be run as a sole proprietary concern or a partnership firm or a company. The proper selection of organisation will depend upon


a. your ability to raise finance

b. your capacity to bear the risk

c. your desire to exercise control over the business

d. nature of regulatory framework applicable to you


If the size of business is small, it would be advantageous to form a sole proprietary business organisation. It can be set up easily without much expenses and legal formalities. It is subject to only a few governmental regulations. However, the biggest disadvantage of sole proprietorship business is limited ability to raise funds which restricts its growth. Besides, the owner has unlimited personal liability. In order to avoid this disadvantage, it is advisable to form a partnership firm. The partnership firm can also be set up with ease and economy. Business can take benefit of the varied experiences and expertise of the partners. The liability of the partners though joint and several, is practically distributed amongst the various partners, despite the fact that the personal liability of the partner is unlimited. The major disadvantage of partnership form of business organisation is that conflict amongst the partners is a potential threat to the business. It will not be out of place to mention here that partnership firms are governed by law and therefore they should be formed within the parameters laid down by the law.


For details as to these parameters viz:


Essential ingredients for the formation of partnership firm

Maximum number of partners

Types of partners

Registration under the law

Procedure for registration


Company is another form of business organisation which has the advantage of distinct legal identity and limited liability to the shareholders. It can be a private limited company or a public limited company.


A private limited company can be formed by just two persons subscribing to its share capital. However, the number of its shareholders cannot exceed fifty, public cannot be invited to subscribe to its capital and the members' right to transfer their shares is restricted.


On the other hand, a public limited company has a minimum of seven members. There is no limit on the maximum number of its members. It can invite the public to subscribe to its capital and permit the transfer of shares. A public company offers enormous potential for growth because of access to substantial funds. The liquidity of investment is high because of easiness of transfer of shares. However, its formation can be recommended only when the size of the business is large. For small business, a sole proprietary concern or a partnership firm will be the most suitable form of business organisation.


In case it is decided to incorporate a private limited company, the same is to be registered with the Registrar of Companies.




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