Key Idea: Every business has a legal shape that decides who owns it, who decides, who pays if it fails and where the profit goes. This topic is the six shapes, from one person trading alone to a company anyone can buy into, and the businesses that exist for a mission rather than a profit.
One owner, or a few
- Sole trader: one owner, full control, unlimited liability, no continuity.
- Partnership: two or more owners share decisions, profit and risk; still unlimited liability.
- Both are unincorporated: the owners and the business are the same legal person.
Companies
- A company is a separate legal person, owned through shares, so owners have limited liability.
- Privately held (Ltd): shares sold only with the owners' consent, accounts private, control kept.
- Publicly held (plc): shares traded on a stock exchange, accounts published, far more capital, takeover risk.
Owned by members
- Cooperative: owned by its members, one member one vote, surplus shared.
- Serves the members' common interest; slower decisions and harder to raise big sums.
Mission first
- Social enterprise: a social mission funded by trading, surplus kept for the mission.
- For-profit kinds: private sector companies, public sector companies, cooperatives.
- Non-profit: NGOs and charities, funded by donations and grants, often run with volunteers.
The words to know
| Word | Means | Do not confuse with |
|---|---|---|
| Private sector | businesses owned by private individuals or companies | a privately held company: that is one kind of private-sector business |
| Public sector | organisations owned and run by the government | a publicly held company, which is in the private sector |
| Unlimited liability | the owner is personally responsible for all the business's debts | limited liability, where the owner can lose only what they invested |
| Limited liability | shareholders can lose only the money they paid for their shares | no liability at all: the shares can still become worthless |
| Incorporated | registered as a company, a separate legal person from its owners | a sole trader or partnership, which is not separate from its owners |
| Share | an equal slice of a company's ownership, votes and profit | a loan: a lender is owed money, a shareholder owns a piece |
| Dividend | the part of the profit paid out to shareholders, so much per share | profit kept in the business |
| Stock exchange | the market where a publicly held company's shares are bought and sold | a privately held company's shares, which are never traded there |
| Deed of partnership | the written agreement setting the partners' capital, profit shares and roles | a company's registration |
| Cooperative | a business owned by its members, one member one vote | owned by its employees: only a worker cooperative is |
| NGO | a not-for-profit organisation independent of government, funded by donations and grants | a public sector company, which the government owns |
State two features: two words each, from the list for that entity, and nothing that belongs to another entity. Explain one advantage and one disadvantage: name the point, then show it happening to the business in the case. The second mark of each pair is the case.
Exam-style question
Lena's Bakery Ltd is a privately held company that needs $4 million to open twenty new shops. Explain one advantage and one disadvantage for Lena's Bakery Ltd of converting from a privately held company to a publicly held company.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
Important: 'Shares traded on the stock exchange' for a privately held company. 'Limited liability' for a sole trader. 'Owned by its employees' for every cooperative. Each entity has its own short list. Learn the lists, and check which entity the question names before you write.
Tap each card to check yourself.
Lena trades alone and signs the lease in her own name. Which entity, and what is she risking? A sole trader with unlimited liability: if the bakery cannot pay its debts, her savings and home can be taken.
What does a deed of partnership settle? How much each partner puts in, how profit is shared, who decides what, and what happens when a partner leaves or dies.
Why can nobody buy Lena's Bakery Ltd without Lena and Marco's consent? In a privately held company shares can be sold to outsiders only with the existing shareholders' agreement.
1,200 shares. How many give majority control? 601. A majority is more than half; exactly 600 is half and can be tied.
Forty farmers own the mill that grinds their wheat and each has one vote. Which entity? A cooperative: owned by its members, run democratically, surplus shared among them.
An organisation feeds the homeless, funded by a grant and donations, run by volunteers. Which kind? A non-profit social enterprise, an NGO or charity: a social mission, no owners taking profit, funded by donations and grants.
Exam tips
- Each entity has its own feature list. State two from the right list and stop.
- Unlimited liability belongs to sole traders and partnerships; limited liability belongs to companies and cooperatives.
- Privately held: consent to sell shares, private accounts, control kept. Publicly held: stock exchange, published accounts, takeover risk.
- Share arithmetic: shares held divided by all the shares, times 100. A majority is more than half.
- In a four-mark advantage-and-disadvantage question, every point needs the named business in it.