Types of Business
Organisation
Sole traders, partnerships, private and public limited companies, franchises, joint ventures, and how to recommend the right structure for any business.
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- Owner = the business (same legal entity)
- Unlimited liability — personal assets at risk
- Simple to set up
- Examples: Sole Trader, Partnership
- Business = separate legal entity from owners
- Limited liability — only investment at risk
- More complex to set up
- Examples: Ltd, PLC
Key Terms
| Limited Liability | Owners only liable for the amount invested. Personal assets (house, car) are protected if the business fails. |
| Unlimited Liability | Owners personally responsible for ALL debts — personal assets can be seized to pay them. |
| Shareholder | A person who owns shares (part-ownership) in a limited company. Receives dividends from profits. |
| Dividend | A share of company profits paid out to shareholders, usually annually. |
| Share Capital | Money raised by selling shares to investors — used to fund the business. |
Never confuse Public Ltd (PLC) with the public sector — PLCs are privately owned businesses listed on the stock exchange. The public sector is government-owned.
A business owned and run by one person. The most common form of business organisation.
- No legal distinction between owner and business (unincorporated)
- Unlimited liability — owner personally responsible for all debts
- Easy and cheap to set up — no formal registration required in most countries
- Examples: plumber, hairdresser, market stall, freelancer
- Easy and cheap to set up
- Full control — owner makes all decisions
- Owner keeps all profits
- Privacy — no requirement to publish accounts
- Flexible — can respond quickly to change
- Unlimited liability — personal assets at risk
- Difficult to raise finance
- No one to share workload — risk of overworking
- Business may struggle if owner is ill
- Limited skills — one person cannot be expert at everything
A business owned by 2 or more people (usually up to 20). Common in professional services.
- Governed by a Deed of Partnership — a legal agreement between partners
- Unincorporated — unlimited liability (each partner liable for ALL debts, including those caused by other partners)
- Examples: law firms, accountancy practices, medical and dental practices
- More capital available than sole trader
- Shared workload and responsibilities
- Partners bring different skills
- Relatively easy to set up
- Private — no public accounts required
- Unlimited liability for all partners
- Profits shared — less per person
- Disagreements between partners can cause problems
- One partner’s poor decisions affect all
- Partnership dissolves if a partner leaves or dies
📇 Spot the Business Type — Flashcards
Read the description, guess the business type, then click to reveal the answer.
One owner, full control, unlimited liability. Easy to set up — no formal registration needed.
2+ owners, unlimited liability for all partners. Governed by a Deed of Partnership.
Shares sold privately only. Limited liability. Must publish accounts but retains some privacy.
Shares publicly traded. Can raise very large capital. But risk of hostile takeover.
Franchisee pays initial fee + ongoing royalties. Uses franchisor’s brand and must follow their rules.
Two separate firms collaborate on a project, sharing costs, risks and profits. Common for entering new markets.
Deed of Partnership covers: how profits are shared, roles and responsibilities, how disputes are resolved, what happens if a partner leaves. Without a deed, the Partnership Act 1890 applies — profits split equally and all partners have equal say.
An incorporated business owned by shareholders. Shares can only be sold privately — not on a stock exchange.
- Separate legal entity — limited liability for shareholders
- Shares sold privately — cannot be advertised or sold on a stock exchange
- Must register with Companies House and publish annual accounts
- Examples: Dyson Ltd, many family-owned businesses
- Limited liability protects personal assets
- Separate legal identity — business continues if owner changes
- Easier to raise capital than sole trader / partnership
- Profits only shared among private shareholders
- More credibility with banks and suppliers
- More complex and costly to set up
- Must publish annual accounts — less privacy
- Cannot sell shares to public — harder to raise large amounts
- Subject to more legal regulations
- Shareholders may have conflicting interests
An incorporated business that can sell shares to the general public on a stock exchange (e.g. London Stock Exchange).
- Shares freely traded on a stock exchange — limited liability
- Must have minimum share capital of £50,000 (UK)
- Must publish detailed annual reports — full public transparency
- Examples: Apple, Tesla, Tesco PLC, BP PLC, Samsung
- Can raise very large amounts of capital by selling shares
- Limited liability for all shareholders
- Greater public profile and credibility
- Easier to attract investors
- Shares can be used to take over other companies
- Risk of hostile takeover — anyone can buy shares
- Must publish detailed accounts — no privacy
- Expensive to float on stock exchange
- Short-term shareholder pressure may conflict with long-term strategy
- Heavily regulated — high legal and admin costs
Ltd vs PLC — Key Differences
| Feature | Private Ltd (Ltd) | Public Ltd (PLC) |
|---|---|---|
| Share sale | Privately only | Publicly on stock exchange |
| Minimum shares | No minimum | Min. £50,000 (UK) |
| Accounts | Must publish — some privacy | Full public disclosure |
| Takeover risk | Low — owners control share sales | High — anyone can buy shares |
| Capital raising | Limited to private investors | Can raise millions from the public |
| Control | Founders usually retain control | Risk of losing control to shareholders |
📇 Ltd vs PLC — Comparison Flashcards
Click each card to flip between Ltd and PLC.
Shares freely traded on the stock exchange — anyone can buy them at any time.
Ltd: Sold privately only — no public listing.
Can raise millions from the general public via share sales on the stock exchange.
Ltd: Limited to private investors and bank loans.
Anyone can buy shares on the open market — hostile takeover is possible.
Ltd: Low risk — owners control who buys shares.
Must publish full detailed annual reports — complete public transparency.
Ltd: Must publish, but some privacy retained.
Shareholders vote on key decisions. Founders risk losing control as more shares are sold.
Ltd: Founders usually retain full control.
Tesco PLC, BP PLC, Apple, Samsung, Barclays PLC.
Ltd: Dyson Ltd, many family businesses.
A business arrangement where the franchisor grants the franchisee the right to use its brand, products and business model.
- Franchisor: the original business that licenses its brand and model
- Franchisee: buys the right to operate under the franchisor’s brand
- Franchisee pays an initial fee and ongoing royalties (% of revenue)
- Franchisee must follow strict rules: products, decor, training, pricing
- Examples: McDonald’s, Subway, KFC, Domino’s, Starbucks
- Proven business model — lower risk of failure
- Instant brand recognition — attracts customers immediately
- Training and support provided by franchisor
- Easier to get bank loans (banks trust franchises)
- Franchisor benefits from growth without risking own capital
- High initial franchise fee can be expensive
- Ongoing royalty payments reduce profit
- Limited freedom — must follow franchisor’s rules
- Reputation at risk if other franchises perform badly
- Contract may limit ability to sell or exit
Two or more businesses collaborate on a specific project, sharing costs, risks and profits. Each retains its own separate identity.
- Can be temporary (one project) or longer-term
- Costs, risks, and profits shared according to the agreement
- Examples: Sony Ericsson (Sony + Ericsson), BMW & Toyota (hydrogen fuel)
- Shared costs and risks — less exposure for each firm
- Access to partner’s expertise, technology, or market
- Allows entry into new markets (especially overseas)
- Shared resources mean larger projects are possible
- Both firms benefit from combined strengths
- Profits must be shared between partners
- Disagreements between partners can cause problems
- Different business cultures may clash
- One partner’s poor decisions affect the other
- Difficult to exit if the venture is unsuccessful
Franchise questions often ask about both the franchisor’s AND franchisee’s perspectives — cover both sides. Joint ventures are especially common in international business — firms use them to enter foreign markets with a local partner.
Public Sector Organisations
| Type | Description |
|---|---|
| Public Corporation | Government-owned businesses providing essential services, e.g. BBC (UK), national railways. Aim: public service, not profit. |
| Government Departments | Directly run by the government, e.g. HMRC, Ministry of Defence. Funded entirely by taxation. |
| Local Authority Services | Services by local councils, e.g. waste collection, libraries, parks. Funded by local taxes and central government grants. |
| Nationalised Industries | Private businesses taken into government ownership, e.g. some banks were nationalised during the 2008 financial crisis. |
📇 Recommendation Flashcards
Click each card to reveal the best structure for that situation.
Easy and cheap to set up. Owner makes all decisions and keeps all profits. But remember: unlimited liability — personal assets are at risk.
Shared workload, skills and costs. Draw up a Deed of Partnership. But both have unlimited liability for each other’s debts.
Protects personal assets. Ownership stays private — shares cannot be sold publicly. Must publish annual accounts.
Can sell shares to the public on the stock exchange. But risk of hostile takeover and loss of control.
Proven model, instant brand recognition, training provided. But high initial fee, ongoing royalties, and limited freedom.
Partner with a local firm to share risk, costs and market knowledge. Good for overseas entry. But profits and control are shared.
Government-owned, funded by taxes. Aims to provide a public service — not to make a profit. Examples: BBC, national railways.
Exam Tip — Recommend and Justify: State the type → explain 2 specific advantages → link to the business’s situation → consider one drawback. Always link limited liability to context when recommending an incorporated structure.
Unlimited liability. One owner, full control, easy setup. Most common form.
Unlimited liability. 2+ owners, shared skills. Governed by Deed of Partnership.
Limited liability. Private shares, separate legal entity, cannot sell publicly.
Limited liability. Public shares on stock exchange, large capital, hostile takeover risk.
Licence to use brand. Franchisor + franchisee. Royalties + initial fee. Proven model.
Two firms collaborate, share risk and profit. Common for entering foreign markets.
Government-owned. Public service focus, not profit. Funded by taxes.
PLC ≠ public sector. Limited liability = only investment at risk, NOT personal assets.
Priya runs a successful bakery as a sole trader. She wants to expand but is worried about the financial risks. Her accountant suggests converting to a Private Limited Company (Ltd).
- Knowledge (K): By becoming a Private Ltd company, Priya would benefit from limited liability (1 mark)
- Application (App): her personal assets such as her home and savings would be protected (1 mark)
- Analysis (An): as she is worried about financial risk, limited liability would encourage her to expand more confidently (1 mark)
FastBurger is a well-known burger chain. It wants to expand rapidly across Asia without using its own capital. It decides to offer franchise agreements to local entrepreneurs in each country.
- Knowledge (K): FastBurger can expand rapidly without using its own capital (1 mark)
- Application (App): franchisees pay the initial fee and fund each new outlet themselves (1 mark)
- Analysis (An): FastBurger grows its brand across Asia while keeping its own financial risk low (1 mark)
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