It is important to choose an appropriate form of organisation because each form of business organisation has certain advantages as well as disadvantages. Making the right choice ensures that the business operates efficiently with suitable structures for its specific needs.

The factors that determine the choice of form of organisation are as follows:

Initial costs and liability are primary considerations. Different forms have varying setup costs and degrees of liability exposure for owners. Continuity is another factor, as some forms like companies enjoy perpetual succession while others may face dissolution upon the owner's death.

Capital considerations and managerial ability significantly influence the choice. A sole proprietor may find it difficult to have expertise in all functional areas of management. In contrast, partnership and company forms allow division of work among members, enabling managers to specialise in specific areas for better decision making. Complex operations requiring professionalised management favour the company form.

Degree of control and nature of business are also vital factors. Simplicity of operations may suit proprietorship or partnership, while large-scale operations require different organisational structures.

It is important to note that these factors are inter-related. Factors like capital contribution and risk vary with the size and nature of business. A form suitable for a small-scale business might not be appropriate for large-scale operations. Therefore, all relevant factors must be taken into consideration while making this decision.