Types of business organisation Revision Notes

Sole traders are businesses owned and run by one individual. The owner has full control over decisions and keeps all profits but also bears unlimited liability, meaning personal assets can be used to settle business debts.

Partnerships involve two or more people sharing ownership, responsibilities, profits, and losses. Like sole traders, partnerships are unincorporated, so partners have unlimited liability unless a limited partnership is formed.

Both sole traders and partnerships are simple to set up with minimal legal formalities. However, unlimited liability increases personal financial risk if the business fails. Ownership is direct and personal, with no legal separation between owner(s) and the business.

• Sole trader: single owner, full control, unlimited liability.
• Partnership: 2+ owners, shared control and profits, unlimited liability.
• Unincorporated: no separate legal identity from owners.
• Unlimited liability means personal assets at risk.

Limited companies are incorporated businesses with a separate legal identity from their owners (shareholders). This means the company itself can own assets, incur debts, and enter contracts.

Private limited companies (Ltd) have shareholders who own shares privately. Shares cannot be sold to the public. Shareholders have limited liability, so their financial loss is limited to the amount invested in shares.

Public limited companies (PLC) can sell shares to the public on the stock market. They also have limited liability and must meet stricter regulatory requirements, including publishing financial reports and minimum share capital rules.

• Limited companies have separate legal identity.
• Shareholders have limited liability, protecting personal assets.
• Ltd: shares privately owned, cannot be sold publicly.
• PLC: shares sold publicly, subject to more regulations.

A franchise is a business where an individual (franchisee) buys the right to operate under an established brand and business model owned by the franchisor. The franchisee pays fees or royalties and benefits from brand recognition and support.

A joint venture is a business arrangement where two or more businesses collaborate on a specific project or business activity, sharing resources, risks, and profits. It is usually for a limited time or purpose and can be structured as a separate legal entity or a contractual agreement.

• Franchise: operate under established brand, pay fees, benefit from support.
• Joint venture: collaboration between businesses for a specific project.
• Joint ventures share risks, costs, and profits.

Public sector organisations are owned and controlled by the government. Public corporations are examples, operating commercially but owned by the state. They provide goods or services to the public, often in essential sectors like utilities or transport.

Unlike private businesses, public corporations aim to balance profit-making with public service objectives. They may receive government funding and have different accountability and governance structures.

• Public corporations owned by government.
• Operate commercially but serve public interest.
• May receive government funding and have public accountability.

Unincorporated businesses (sole traders and partnerships) have no separate legal identity, so owners face unlimited liability and personal risk if the business fails.

Limited companies protect owners with limited liability, restricting losses to invested capital. This reduces personal financial risk but involves more complex legal requirements.

Choosing the right business type depends on factors like desired control, willingness to accept risk, need for capital, and regulatory compliance. For example, a sole trader suits small, low-risk businesses, while a PLC suits large businesses needing significant capital and limited liability protection.

• Unlimited liability increases personal financial risk.
• Limited liability protects personal assets beyond investment.
• Business type choice depends on control, risk, capital needs, and legal complexity.