Business Ownership

Suited to OCR GCSE Business

What is business ownership?

The legal structure that determines who owns a business and how it is run.

What are the four main types of business ownership?

Sole trader, partnership, private limited company, and public limited company.

What is a sole trader?

A business owned and run by one person.

What is an example of a sole trader business?

A hairdresser, plumber or small shop owner.

What is unlimited liability?

When the owner is personally responsible for all business debts.

Why is unlimited liability risky?

Owners may lose personal assets (e.g. house or savings) if the business fails.

What are advantages of being a sole trader?

• The owner keeps all the profit.

• The owner has full control over decisions.

• The business is easy and cheap to set up.

What are disadvantages of a sole trader?

• Unlimited liability.

• It may be difficult to raise finance.

• The owner may work long hours.

What is a partnership?

A business owned by two or more people who share responsibility.

What is usually created when forming a partnership?

A partnership agreement.

What is a partnership agreement?

A legal document outlining how profits, responsibilities and decisions are shared.

What are advantages of a partnership?

• More capital can be invested than a sole trader.

• Workload and responsibilities are shared.

• Different partners bring different skills.

What are disadvantages of a partnership?

• Profits must be shared.

• Disagreements between partners may occur.

• Unlimited liability.

What is a limited company?

A business that is legally separate from its owners.

What is limited liability?

Owners only lose the money they invested if the business fails.

Why is limited liability important?

It protects owners’ personal assets.

What are the two types of limited companies?

Private limited companies (Ltd) and public limited companies (PLC).

What is a private limited company (Ltd)?

A company owned by shareholders where shares cannot be sold to the public.

Who owns a private limited company?

Shareholders.

What is a shareholder?

A person who owns shares in a company.

What are advantages of a private limited company?

• Limited liability for owners.

• More capital can be raised by selling shares.

• The business continues even if owners leave.

What are disadvantages of a private limited company?

• It is more complicated to set up.

• Accounts must be published.

• Profits are shared with shareholders.

What is a public limited company (PLC)?

A company whose shares can be bought and sold on the stock exchange.

What must a PLC have before trading shares?

At least £50,000 share capital.

What are advantages of a PLC?

• Large amounts of finance can be raised from selling shares.

• Limited liability for shareholders.

What are disadvantages of a PLC?

• Expensive and complicated to set up.

• Loss of control because many shareholders own the business.

• Company accounts must be publicly available.

Why might a start-up choose to be a sole trader?

It is quick, cheap and simple to set up.

Why might a growing business change ownership structure?

To raise more finance or reduce risk.

Why might a large business choose to become a PLC?

To raise large amounts of capital for expansion.

What factor influences the choice of ownership?

Level of financial risk the owner is willing to take.

What are the factors that influences the choice of ownership?

• Amount of finance needed.

• Level of control the owner wants.

• Size and growth plans of the business.

Why might a partnership be suitable for a start-up?

It allows owners to share costs, skills and responsibilities.

Why are limited companies often used by larger businesses?

They allow businesses to raise more capital and limit financial risk.