The Main Types of Ownership (CIE IGCSE Business)

Unlimited liability

• The owners are fully responsible for all debts owed by the business

• Owners are also legally responsible for any unlawful acts committed by those connected to the business

• There is no legal distinction between the  owners and the business

• As a result, these business owners may have to use their own personal assets to pay debts or legal fees

• E.g. a sole proprietor may need to sell their home to pay creditors if their business fails

Limited liability

• Owners (shareholders) of private limited companies and public limited companies can only lose the original amount they invested in the business if it fails

• Shareholders are not responsible for business debts

• In most cases shareholders cannot be held responsible for unlawful acts committed by those connected with the business

• Companies are  incorporated and owners are considered a separate legal entity to the business 

• This means that if a company fails, the owners would lose their investment (shares) but would not have to use their assets to meet additional debts or legal fees

• E.g. In 2018 construction company Carillion entered liquidation and the shareholders lost their investments

Sole Trader

• A business that has a single owner (although they may still hire employees)

• Easy and inexpensive to set up
• The owner has complete control over the business
• All profits belong to the owner
• Simple tax arrangements

• Unlimited liability, meaning the owner is personally responsible for any debts the business incurs
• Limited access to finance and capital
• Limited skill set of the owner/entrepreneur

Partnership

• Two or more people join together to form a business
• Businesses commonly established as partnerships include law firms, accountancy businesses and small-scale construction businesses
• Partnerships can often be identified by suffixes such as '& Son' or 'and Partner'

• Easy to set up and inexpensive
• Shared responsibilities and decision-making
• More skills and knowledge are available
• Increased access to finance and capital

• Unlimited liability
• Potential for disputes between partners
• Profits are often shared equally, regardless of the contribution
• Difficult to transfer ownership

Private Limited Company (Ltd)

• The ownership of the business is broken down into a specified number of shares
• These shares can be sold by the owner, usually to friends and family or to venture capitalists
• Decision-making often rests with the person appointed to run the company, often called the Managing Director or CEO

• Limited liability, meaning the owners are not personally responsible for the company's debts
• Access to greater finance and capital
• Easier to transfer ownership
• Can provide a professional image and reputation

• More expensive and time-consuming to set up
• More complex legal requirements and regulations than sole traders
• Annual financial reporting and auditing are required
• Shareholders have little control over the company as the founder usually imposes their agenda

Public Limited Company (PLC)

• When a business is growing rapidly it may require a significant amount of capital to fund its expansion
• To secure this funding, it may choose to transition from a private limited company (LTD) to a public limited company (PLC)
• This is a complex legal process  which involves undergoing a stock market flotation

• Significant amounts of capital can be raised very quickly
• The risks associated with ownership are spread among a larger group of shareholders
• Becoming a PLC raises a company's profile and increase its visibility with customers, suppliers, and potential investors

• The business is required to adhere to a range of legal and financial regulations which can be costly and time consuming to comply with
• Selling shares to the public creates many shareholders who will have a say in how the company is run
• PLCs are expected to deliver consistent growth and profits to their shareholders

• A ready-made, recognised brand name which will be promoted centrally by the franchisor
  
  
• The franchisor provides training, such as how to make pizzas properly, so as to ensure the quality and brand consistency 
  
  
• Suitable suppliers do not need to be sourced as equipment and consistent supplies are provided through the franchisor
   
• The franchisor guarantees an exclusive geographical area or market to the franchisee so competition is limited
  
  
• Advice, training, use of software systems are ongoing and the franchisor may also provide loans, insurance and recruitment support

• The cost to purchase a well-known franchise is likely to be high
  
  
• Core decisions are made by the the franchisor, reducing the business owner's autonomy
  
  
• Royalties linked to the level of sales must be paid regularly, regardless of profit
   
• Required materials, supplies or equipment sold by the franchisor may be sold to the franchisee at inflated prices
  
  
• If the franchisee does not follow strict franchise rules or fails to meet quality expectations their franchise rights can be removed 

• Each partner in the joint venture benefits from sharing expertise and resources, such as distribution channels and R&D expertise
  
  

• Joint ventures are less risky than 'going it alone' if  entering a new market or diversification
  
  

• Local knowledge can be accessed when one of the joint venture partner companies is already based in the country
  
  
• Costs are shared between joint venture companies, which is very important for expensive projects such as new aircraft

• If the joint venture is successful, profits have to be shared between the partner businesses
  
  
• Disagreements may occur regarding important decisions due to the input of managers in both businesses
  
  
• The objectives of each business may change over time, leading to a conflict of objectives between joint venture partners
  
  
• If the joint venture fails, it may need to be dismantled, reorganised or sold, which is likely to take significant time and resources