Types of business organisation
- Sole Traders: Owned by one individual.
- Partnerships: Owned by 2–20 individuals (under standard partnership acts).
- Private Limited Companies (Ltd): Owned by shareholders, but shares cannot be traded publicly.
- Public Limited Companies (PLC): Owned by shareholders, with shares traded on a stock exchange.
- Franchises: A business model where an independent owner operates under a larger brand's license.
- Joint Ventures: Two or more businesses combine resources for a specific project while remaining separate entities.
Public Sector Businesses are owned and controlled by the government. The primary form is the Public Corporation (e.g., NHS, Royal Mail). Their main objective is providing essential services, not profit maximization.
Incorporated Business (Limited Company): A business that is a separate legal entity from its owners. It has its own rights, can sue/be sued, and owns property in its own name.
Unlimited Liability: The owner is personally responsible for all debts. If the business fails, creditors can take the owner's house, car, and savings to pay off debts.
Ownership vs. Control: In sole traders/partnerships, owners usually manage the business. In limited companies, shareholders own it, but directors manage it (separation of ownership and control).
| Limited Company (Ltd/PLC) |
|---|
| Separate legal entity. Distinct from owners. |
| Limited Liability. Loss limited to investment. |
| Complex/expensive. Requires Memorandum & Articles of Association, registration with Companies House. |
| Perpetual succession. Continues regardless of owner/director changes. |
| Easy (especially PLCs). Shares can be bought/sold instantly. |
The Correction:
- A PLC is in the Private Sector. It is owned by private shareholders and traded on the stock exchange. Its goal is profit.
- A Public Corporation is in the Public Sector. It is owned by the government. Its goal is service provision.
Do not say a PLC is 'owned by the public' in the sense of government ownership; it is owned by shareholders who happen to be members of the public.
The Correction: All Ltds and PLCs are in the Private Sector. The word 'Private' in 'Private Limited Company' refers to the restriction on share sales (shares cannot be sold to the general public/on the stock exchange), not its sector classification. It is still a private, profit-driven business.
Why examiners accept this: Examiners look for application to the context. You must link the features of the structure to the specific needs of the business (e.g., need for large capital, desire for control, risk level).
Example: 'I recommend a Public Limited Company because DBR needs to raise large amounts of finance for expansion. As a PLC, it can sell shares to the general public on the stock exchange, providing significant capital without increasing debt.'
Key Phrase: Use 'because' to link the feature (selling shares) to the benefit (raising finance).
Why examiners accept this: Precision is key. You must mention the restriction on share transfer. Simply saying 'owned by shareholders' is insufficient because PLCs are also owned by shareholders.
Example: 'A private limited company is a business owned by shareholders where shares cannot be sold to the general public or traded on the stock exchange.'
Key Phrase: Explicitly state 'cannot sell shares to the public'.
Disadvantage: Loss of control as original owners may hold less than 50% of shares [1], or risk of takeover by other investors [1].
Justification: Charly wants complete control over decisions. As a sole trader, he has full authority without consulting partners [1]. He also keeps all profits, which provides strong incentive [1]. However, he faces unlimited liability, so if the business fails, his personal assets are at risk [1]. Given the small scale and low risk of the venture, this is acceptable [1].
Alternative: Private Limited Company.
Justification: If Charly needs to raise capital from family/friends without losing control to the public, an Ltd is suitable [1]. It offers limited liability, protecting his personal assets [1]. However, there are more legal formalities and costs involved in setting up compared to a sole trader [1].
Franchise: A business arrangement where a franchisee pays a fee to a franchisor to use their brand, products, and business model.
- Advantage: Lower risk due to established brand recognition.
- Disadvantage: Less freedom; must follow strict rules set by the franchisor.
Joint Venture: A strategic alliance where two or more businesses combine resources for a specific project or market entry. They remain separate legal entities.
- Advantage: Shared risks and costs; access to each other's expertise/markets.
- Disadvantage: Potential for conflict over management and profit sharing.
The Correction: 'Unincorporated' is a category, not a specific type. Sole traders and partnerships are examples of unincorporated businesses. Do not list 'unincorporated business' as a distinct option in a recommendation question; specify whether it is a sole trader or partnership.
Why examiners accept this: You must distinguish their goal from private sector goals. Private sectors maximize profit; public sectors provide essential services.
Example: 'Public corporations like the NHS are not driven by profit maximization but by the need to provide essential healthcare services to all citizens, regardless of ability to pay.'
Key Phrase: 'Providing essential services' or 'Social welfare' rather than **'Profit'.
Advantage 2: Limited liability protects shareholders' personal assets if the business fails [1], encouraging investment [1].