Background: There are three basic forms of business organization widely existed in an economy i.e. Sole Proprietorship, Partnership, and Company. Formation of these three businesses requires different legal requirements and obligations. Their success not only depends upon the capital, leadership and the innovation but it also depends upon the wise and well thought decisions taken by the stakeholders.
Scenario: Mr. Irshad was running his own business in the vicinity of Lahore. He established a small unit of processing of masala recipes for preparing different traditional and local dishes. With a limited starting capital he was performing well and leading a workforce of 10 employees in his unit. All the employees were well managed under his supervision. One day a bunch of his old friends came to visit him and they were really impressed with his expertise in Masala recipes. They gave him an idea about the expansion of business by forming a company. Actually, they were interested in investing in his business for expansion. Mr. Irshad was also thinking of business expansion and it was good opportunity for him although he was aware of the challenges associated with business expansion. Requirements: If you were Mr. Irshad
1. Would you accept/reject the proposal given by his friends? Provide at least five logical arguments in accepting or rejecting the proposal. (5 Marks)
I accept the proposal of his friend because
1. It enjoys the advantage of increased capital
2. Availability of huge amounts of capital makes possible for company to produce Goods on very large scale, at a lower cost.
3. Long life business
4. Low Profit share
5. Increase in Saving and Investment
6. Higher Profits
7. Easy Access to Credit
2. From the legal perspective, how would you elaborate those requirements that must be fulfilled to form a company?
1. Prepare a business plan.
2. Choose a location to set up your business.
3. Obtain financing or other forms of startup capital.
4. Determine a legal structure for your business.
5. Register your business.
6. Obtain a Tax ID.
7. Obtain business licenses and permits. Most businesses will need to obtain a license to legally operate in its given place of business from the local municipality. Failing to do so could result in fines or other penalties.