After the initial theoretical definition of the concepts, elements of the organization and the factors that affect the elements of the organization, thesis presents the historical circumstances of the organization of local governments in Croatia. It also shows recent research of the organization system in Croatia and certain EU countries along with which the criteria for the organization of the system is proposed. The comment on the results of the analysis of business success in insular and small local governments is given, based on the results collected in a survey conducted on the topic of organization of insular and small units of self-government. In the case of organization of local self-government units on the island of Rab the suitability of the organization of the City of Rab and the Municipality of Lopar was assessed. The consolidation of the research findings highlighted some important observations which may lead to the conclusions of the success of the organization of insular local government in the Republic of Croatia, as well as the success of the overall organization of the system of local government in the Republic of Croatia.This idea of this thesis is to point out that the current structure of local and regional authorities is not efficient and effective and that it should be revised. Thesis describes the conditions in which the current system of local and regional government in the Republic of Croatia was formed as well as its present state. A success based comparison of the organization of the system of local and regional governments in our country was made. Comparison also included neighboring countries, especially those which are thought to be the most developed democracies in the European Union. The presumption that the system of government and administration in Croatia is not functioning according to the principles of efficiency and effectiveness and that as such require a revision, was confirmed on the example of the organization of insular local government units through the case of the organization of local governments on the island of Rab, which is organized the two local units.