1.2 types of business entities

Cooperatives

are for-profit social enterprises set up, owned and run by their members, who might be employees and/or customers.

A company (or corporation)

refers to a limited liability business that is owned by shareholders. A certificate of incorporation gives the company a separate legal identity from its owners (shareholders).

Deed of partnership

is the legal contract signed by the owners of a partnership. The formal deeds specify the name and responsibilities of each partner and their proportion of any profits or losses.

Incorporation

means that there is a legal difference between the owners of a company and the business itself. This ensures that the owners are protected by limited liability.

An initial public offering (IPO)

occurs when a business sells all or part of its business to shareholders on a public stock exchange for the first time. This changes the legal status of the business to a publicly held company.

Limited liability

is a restriction on the amount of money that owners of a company can lose if the business goes bankrupt, i.e. shareholders cannot lose more than the amount they invested in the company.

Non-governmental organizations (NGOs)

are private sector not-for-profit social enterprises that operate for the benefit of others rather than primarily aiming to earn a profit, such as Oxfam and Friends of the Earth.

Partnerships

are a type of private sector business entity owned by 2-20 people (known as partners). They share the responsibilities and burdens of running and owning the business.

The private sector

is the part of the economy run by private individuals and businesses, rather than by the government, such as sole traders, partnerships, privately held companies and publicly held companies.

A privately held company

is a business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public on a Stock Exchange.

A publicly held company

is an incorporated limited liability business that allows shareholders to buy and sell shares in the company via a public Stock Exchange.

The public sector

is the part of the economy controlled by the government. Examples include state healthcare and education services, the emergency services, social housing and national defence.

A sole trader

is a self-employed person who runs the business on his/her own. This means she/he has exclusive responsibility for its success (profits) or failure (unlimited liability).

Social enterprises

are revenue-generating businesses with social objectives at the core of their operations. They can be for- profit or non-profit business entities, but all profits or surpluses must be reinvested for that social purpose rather than being distributed to shareholders and owners.

A stock exchange

is a marketplace for trading stocks and shares of publicly held companies (or public limited companies). Examples include the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE).

Unlimited liability

is a feature of sole traders and ordinary partnerships who are legally liable or responsible for all monies owed to their creditors, even if this means that they have to sell their personal possessions to pay for their debts.