Types of Business Ownership
The legal structure of a business affects who owns it, how decisions are made, how profits are shared and who is liable for debts.
Key Types of Ownership
| Type | Owners | Liability | Key Features |
|---|
| Sole trader | 1 person | Unlimited | Simplest form; owner keeps all profits but bears all risk; no legal distinction between owner and business |
| Partnership | 2-20 people | Unlimited (usually) | Shared decision-making and workload; governed by a Deed of Partnership; disagreements can be a problem |
| Private limited company (Ltd) | Shareholders (private) | Limited | Separate legal entity; shares sold privately (not on stock exchange); owners' personal assets are protected |
| Public limited company (PLC) | Shareholders (public) | Limited | Shares traded on the stock exchange; can raise large amounts of capital; subject to more regulation and public scrutiny |
| Social enterprise | Varies | Varies | Exists primarily to benefit society, not maximise profit; reinvests most profit into its social mission |
| Not-for-profit | Members/trustees | Varies | Charities, community groups; any surplus is reinvested, not distributed to owners |
Unlimited vs Limited Liability
- Unlimited liability: the owner is personally responsible for all business debts — if the business fails, they may lose personal assets (house, car, savings) to pay creditors. Applies to sole traders and most partnerships
- Limited liability: the owners (shareholders) can only lose the amount they invested in the business — personal assets are protected. Applies to Ltd and PLC companies
Sole Trader
| Advantages | Disadvantages |
|---|
| Easy and cheap to set up | Unlimited liability — personal assets at risk |
| Owner keeps all profits | Hard to raise finance — relies on personal savings and loans |
| Complete control over decisions | Heavy workload — responsible for everything |
| Privacy — no requirement to publish accounts | Limited expertise — one person cannot be good at everything |
| Flexible — can adapt quickly | Business dies with the owner (no continuity) |
Private Limited Company (Ltd)
| Advantages | Disadvantages |
|---|
| Limited liability — personal assets protected | More expensive and complex to set up (legal fees, registration) |
| Easier to raise finance by selling shares | Must file accounts with Companies House (less privacy) |
| Separate legal identity — the business can own property, sue and be sued | Profits shared among shareholders |
| Continuity — the business continues if an owner dies | Shares cannot be sold to the public — limits capital raising |
| More credibility with suppliers and customers | Directors have legal duties and responsibilities |
Public Limited Company (PLC)
| Advantages | Disadvantages |
|---|
| Can raise huge amounts of capital by selling shares on the stock exchange | Expensive to set up (minimum £50,000 share capital) |
| Limited liability | Vulnerable to hostile takeovers — anyone can buy shares |
| Greater public profile and credibility | Must publish detailed financial reports — competitors can see performance |
| Easier to attract top talent | Pressure from shareholders to deliver short-term profits |
Franchises
- A franchise is a business model where one company (the franchisor) grants another (the franchisee) the right to use its brand, products and business model
- Examples: McDonald's, Subway, Domino's
- Advantages for franchisee: proven brand, training, support, lower risk
- Disadvantages for franchisee: franchise fees, less independence, must follow strict rules
Exam Tips
- Always link ownership type to liability — this is a key distinction
- Know the difference between Ltd and PLC — especially regarding shares and regulation
- For evaluation: which ownership type is "best"? It depends on the size, aims and risk appetite of the business
- Social enterprises are increasingly popular in exams — know examples like The Big Issue or Divine Chocolate