Types of business organisation
Liability
- Liability = who pays the debts if the business can't.
- unlimited liability — the owner is personally responsible (may lose personal things).
- limited liability — the owner can only lose what they put in.
- Incorporated businesses (companies) are a separate legal identity with limited liability; unincorporated (sole traders, partnerships) are not.
Practice
A sole trader has unlimited liability, which means:
Unlimited liability puts the owner's personal assets at risk if the business fails.
The four main types
| Type | Owners | Liability |
|---|---|---|
| sole trader | one person | unlimited |
| partnership | 2+ partners | usually unlimited |
| private limited company (Ltd) | shareholders (small group) | limited |
| public limited company (plc) | public shareholders | limited |
- Others: franchise (pay to use a known brand), joint venture (share one project), social enterprise (trades to help society).
Practice
A public limited company (plc):
A plc sells shares publicly and can raise large capital, but risks a takeover.
Practice
A franchisee:
A franchisee pays fees and a share of profit to use a proven brand, lowering risk.
You've got it
Key idea
- unlimited liability (sole trader/partnership) risks personal things; limited (companies) doesn't
- Ltd = private shareholders; plc = public shares on the stock exchange
- franchise, joint venture, social enterprise are other forms