The right choice of the form of business is very crucial because it determines the power, control, risk and responsibility of the entrepreneur as well as the division of profits and losses.

The choice of the form of business is governed by several interrelated and interdependent factors:-

• The nature of business is the most important factor. Businesses providing direct services like tailors, restaurants and professional services like doctors, lawyers are generally organised as proprietary concerns. While, businesses requiring pooling of skills and funds like accounting firms are better organised as partnerships. Manufacturing organisations of large size are more commonly set up as private and public companies.
• Scale of operations i.e. volume of business (large, medium, small, micro) and size of the market area (local, national, international).
• The degree of control desired by the owner(s).
• Amount of capital required for the establishment and operation of a business.
• The volume of risks and liabilities as well as the willingness of the owners to bear it.

Comparative tax liability. Some of the forms of business organizations are:

• Sole Proprietorship - It is a one-man organisation where a single individual owns, manages and controls the business. This form of organisation is suitable for the businesses which involve moderate risk, small financial resources, capital requirement is small and risk involvement is not heavy like automobile repair shops, small bakery shops, tailoring, etc.
• Partnership firm - A partnership is formed by an agreement, which may be either written or oral. When the written agreement is duly stamped and registered, it is known as "Partnership Deed". Ordinarily, the rights, duties and liabilities of partners are laid down in the deed. But in the case where the deed does not specify the rights and obligations, the provisions of the THE INDIAN PARTNERSHIP ACT, 1932 will apply. Partnership is an appropriate form of ownership for medium sized business involving limited capital. This may include small scale industries, wholesale and retail trade; small service concerns like transport agencies, real estate brokers; professional firms like chartered accountants, doctors' clinic, attorney or law firms etc.
• Co-Operatives - Co-operative organisation is a society which has as its objectives for promotion of the interests of its members in accordance with the principles of cooperation. It is a voluntary association of ten or more members residing or working in the same locality, who join together on the basis of equality for the fulfillment of their economic or business interest. It is subjected to the provisions of the Co-Operative Societies Act, 1912 or State Co-Operative Societies Act.
• Private Limited Company - A private limited company is a voluntary association of not less than two and not more than fifty members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures. A private company is preferred by those who wish to take the advantage of limited liability but at the same time desire to keep control over the business within a limited circle and maintain the privacy of their business. The state of Sikkim has not ratified the Indian Companies Act, 1956 and therefore, Registrar of Companies does not have their presence in the state. However, for the limited purpose of registration and other statutory requirements Sikkim Companies Act of 1961 and Registration of Companies Act of Sikkim 2007 are in force in the state. And other forms of business organizations are:
• Public Limited Company (PLC).
• Hindu Undivided Family Business (HUF).
• Limited Liability Partnership (LLP).
• Societies.