Types of Business Organization

Sole trader. ONE OWNER who runs the business alone (though may have employees). The simplest legal form.

Pros.

• Easy and cheap to set up — minimal paperwork.
• Owner keeps ALL profits.
• Full control — fast decision-making.
• Privacy — no requirement to publish accounts.

Cons.

• Unlimited liability — owner is personally liable for ALL business debts. House, savings, car can be seized.
• Limited capital — relies on owner's savings and small loans; growth is slow.
• No continuity — business legally ends when owner dies or stops trading.
• Burden of all decisions falls on one person.

Partnership. OWNED by 2-20 PARTNERS. Governed by a partnership agreement covering profit shares, decision-making, dispute resolution.

Pros.

• More capital than a sole trader.
• Workload and risk shared.
• Wider range of skills and ideas.

Cons.

• Usually unlimited liability (each partner responsible for the others' actions).
• Profits split — less for each partner than a sole trader gets.
• Disagreements can paralyse decisions.

Limited Liability Partnerships (LLPs) are a modern variant where partners' liability is limited to what they invested.

Cambridge tip. Mark scheme expects students to mention UNLIMITED LIABILITY for both sole traders and partnerships — this is the central disadvantage and the most common contrast with limited companies.

Both Ltd and Plc are LIMITED COMPANIES — they have a SEPARATE LEGAL IDENTITY from their owners and benefit from LIMITED LIABILITY (shareholders only risk what they invested).

Private limited company (Ltd).

• Shares cannot be traded on a stock exchange.
• Sold privately to family, friends, known investors.
• Typically smaller; many family-owned businesses.
• Less disclosure required than plcs.

Public limited company (plc).

• Shares ARE traded on a stock exchange (LSE, NYSE, etc.).
• Anyone can buy and sell.
• Typically larger; can raise vast amounts of capital.
• Heavy disclosure requirements (annual reports, audited accounts, regulatory filings).
• Subject to takeover by anyone buying enough shares.

	Ltd	Plc
Share trading	Private only	Stock exchange
Liability	Limited	Limited
Capital	Small-medium	Large
Disclosure	Low	High
Ownership control	Often family-controlled	Diluted across many shareholders
Regulation	Lower	Higher

The Ltd → Plc transition. Successful Ltds often 'go public' (IPO — Initial Public Offering) to raise more capital, become more visible, and let early investors cash out. The trade-off: less control, more scrutiny.

Cambridge tip. Mark scheme tests THREE differences between Ltd and Plc. Memorise: share trading, capital, disclosure.

Limited liability is the principle that owners' personal liability for company debts is LIMITED to what they invested.

How it works. A shareholder who buys $1,000 of shares in a plc can lose at most$1,000 if the company fails. Their personal assets — house, savings, car — are PROTECTED.

By contrast, unlimited liability (sole traders, most partnerships) means the owner is PERSONALLY responsible for all business debts. If the business owes $100,000, the owner pays out of personal assets.

Why limited liability exists. Without it, no one would invest in companies they don't directly run — it would be like betting their entire net worth on someone else's decisions. Limited liability is one of the foundational inventions of modern capitalism — it lets people pool capital safely.

The trade-off. Limited companies must INCORPORATE (register, file accounts, comply with regulations) — more cost and admin than a sole trader. Society's protection in return: transparency through filings, taxation through corporation tax, and rules that prevent owners from using the structure to defraud creditors.

Cambridge tip. When asked why someone might choose to incorporate as a Ltd or Plc rather than stay as a sole trader, LIMITED LIABILITY is usually the strongest answer.

Franchise. A business arrangement where the franchisor (parent business — McDonald's, Subway, Anytime Fitness) lets a franchisee (the local owner) operate a branch using the franchisor's BRAND, products and systems in return for an initial fee plus ongoing royalties.

For the franchisee:

• Pros: established brand → instant recognition; proven business model → lower failure rate; training and support from franchisor.
• Cons: limited creative control (must follow franchisor's strict standards); ongoing royalties reduce profit; franchisor's bad PR affects all franchisees.

For the franchisor:

• Pros: rapid expansion using franchisees' capital; ongoing royalty income; franchisees often more motivated than employees because they own the branch.
• Cons: harder to control quality at every location; reputation depends on weakest franchisee.

Cooperative. A business OWNED AND DEMOCRATICALLY CONTROLLED by its members. Three common types:

• Worker cooperatives — employees own and run the firm (e.g. some media organisations).
• Consumer cooperatives — customers own the firm and benefit from lower prices / dividends (e.g. some grocery cooperatives).
• Producer cooperatives — farmers / producers join together to buy supplies in bulk and market their goods (very common in agriculture).

Profits are shared among members (or returned as discounts/dividends). Decisions are typically one-member-one-vote rather than weighted by shares.

Public corporation. A business owned by the GOVERNMENT — provides essential services. Examples:

• National broadcaster (BBC, ABC).
• Postal services.
• National rail networks (in some countries).
• Some utilities.

Funded by taxes and / or user charges. Goal is typically SERVICE PROVISION rather than profit. Some have been PRIVATISED (sold to the private sector) over the past few decades.

Cambridge tip. When asked to compare franchise vs setting up your own business, the key trade-off is STARTUP CONFIDENCE (proven model + brand) vs CREATIVE FREEDOM AND PROFIT RETAINED.