'Selection of a product or service will depend upon many factors.' While assessing the market, an entrepreneur has to prepare details based on these factors. Explain any two such factors. State any six reasons why a substantial number of entrepreneurs prefer to form a private company in spite of certain restrictions imposed on it under the Companies Act.

Question

Accepted Answer

Two factors an entrepreneur must consider while assessing the market are:

1. **Demand** — The demand assessment is based on the size of the market being targeted — local markets, state level markets or national/international markets. It also involves a study of the target groups of consumers, their preferences, tastes and other related variables.

2. **Supply and nature of competition** — The supply position is studied, i.e., the complete picture of the quantities of the product made available in the market by all existing players, also taking into account future supplies from possible entrants in the field.

A substantial number of entrepreneurs prefer to form a **private company** in spite of certain restrictions imposed on it under the Companies Act for the following reasons:

1. **Limited liability** — The liability of members is limited to the unpaid amount on their shares, which protects personal assets.
2. **Separate legal entity** — A private company has a legal identity separate from its members, which gives it continuity and credibility.
3. **Ease of formation** — Compared to a public company, a private company has fewer formalities and compliance requirements.
4. **Greater managerial autonomy** — Since shares are not offered to the public, the existing shareholders retain control over management decisions.
5. **Confidentiality** — Private companies are not required to disclose their financial statements to the public, maintaining business secrecy.
6. **Perpetual succession** — The company continues to exist irrespective of the death, insolvency or retirement of its members, ensuring business continuity.