One of the most important decisions taken by an entrepreneur is the selection of a suitable form of ownership. The best form of organization for any business depends on the objectives decided by the entrepreneur and how fast it can be realized.

The initial choice of the form of organization usually depends on the nature of the business proposed, the scale of operations, financial requirements, the size of the market and also based upon the personal decision of the entrepreneur to go alone or associating with others for more capital, risk sharing and tax advantages and of course been not against the decision of sharing profits.

These requirements are inter-related and have bearing on each other. For example the financial requirement will depend upon the nature of the business and the scale of operations planned. The degree of risk and liability depends on the finance invested and the nature of demand of the products. Similarly the desire to run the business alone and sharing of profits are inter related and are both related to the risk and liability factor. If the risk is less and liability also small, the entrepreneur will not like to share his control and profits with others. The scope and plan of internal organization will depend on the nature and scale of business and the financial resources available for the business.

Small grocery stores, small scale restaurants, street corner shops and the like are predominantly sole proprietorship. Business enterprises on a relatively larger scale whether service, trade or manufacturing are generally organized as partnership firms. Service organizations like restaurants, hotels etc will usually be found operating under partnership ownership. In these cases the entrepreneur wishes to pool their capital, skills, expertise and business experience in partnership. This is true for real estate brokers, legal firms and share brokers etc.

In those organizations where the element of risk is relatively greater even though scale of operation is medium and entrepreneur finds some tax advantages in opting for company organization, a private limited company will be better. Medium scale transport companies, housing companies, finance companies, medium scale manufacturing units, warehousing concerns are examples.

Large scale manufacturing concerns with multiple line of products, large transport or engineering companies, large departmental stores selling everything under one roof or large chains of multiple shops dealing in the same line of products etc are usually public limited companies. The chief reason includes the requirement of sufficiently large investment.