Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighbourhood corner shop selling accessories such as artificial jewellery, bags, hair clips and nail art to a retail chain with three branches in the city. Although she looks after the  varied functions in all the branches, she is wondering whether she should form a company to better manage the business. She also has plans to open branches countrywide.

(a) Explain two benefits of remaining a sole proprietor
(b) Explain two benefits of converting to a joint stock company
(c) What role will her decision to go nationwide play in her choice of
form of the organisation?
(d) What legal formalities will she have to undergo to operate business
as a company?

(a) Benefits of remaining a sole proprietor:
(i) Easy to form : Sole proprietorship form of business organisation is very easily and conveniently established at any where with little cost. Hence, she can establish as many branches as she wants with ease and convenience.
(ii) Full control over business : In sole-proprietorship form of business, the owner can exert total control on business. So Kiran has full liberty to take any decision without anybody's intervention.
(b) Benefits of making a joint stock company:
(i) Large resources: As Kiran wants to expand the business, she requires large resources. That is possible only in case of joint stock company.
(ii) Professional Management: In case of joint stock company, the help of professional management can be taken as the company has access of better resources and a goodwill in the capital market.
(c) When Kiran decides to go nationwide, it has a direct impact on her decision of forms of business organisation because :
(i) Sole proprietorship form is the best in the world provided the owner should be big enough to maintain it. When the organisation becomes nationwide, it would be very difficult for the owner
to manage each unit in an efficient mannner.
(ii) There are risks involved in adding partners as partnership has its own merits and demerits.
(iii) The best and suitable option for Kiran to go nationwide is joint stock company as this ferm offers a number of advantages like availability of larger resources, professional management, control by experts trust of financial institutions etc.
So, we can say that Kiran's decision to open branches of her business nationwide would definitely affect her choice of form of business organisation.
(d) When Kiran goes to establish joint stock company, she has to, first of all decide that whether she wants to go for private company or public company as establishment of private company involves two stages whereas establishment of public company requires four stages which are as follows :
(i) Preliminary Stage: In order to form a company, Kiran has to prepare the following documents :
1. Memorandum of Association.
2. Article of Association.
3. Directors Signatures.
4. Signature of all the members showing their consent to become the members of the company. Declaration of compliance of all the formalities.
5. Declaration of compliance of all the formalities.
(ii) Incorporation: After finalising all the paper, she has to submit these papers with Registrar of Companies. If he is satisfied with all these papers, then he issues the 'Certificate of Incorporation' which is conclusive evidence of the formiation of the company.
However, if Kiran wants to go for public company, then she has to undergo from the following stages :
Capital susbscription: As per SEBI guidelines, it is compulsory for a public company to invite public to purchase its shares through the publication of prospectus. However, if the company does not want to invite public for its shares subscription, then it can file 'statement in lieu of prospectus' within three days of its allotment of shares.
Kiran, will file all the relevant papers relating to capital subscription with the Registrar of Companies. If he becomes satisfied with these papers, division of shares etc. then he issues, 'Certificate of Commencement of Business'. After that, kiran can start business with public company and can raise money from the public.