Revise Business ownership for Cambridge 9609 (1.2.2)

A sole trader is the simplest business structure, owned and operated by a single individual. There is no legal distinction between the owner and the business itself. This offers complete control over all decisions and the right to all profits. However, this structure carries significant personal risk due to unlimited liability. This means the owner is personally responsible for all business debts, and personal assets like their home or car could be used to settle them. Raising finance can also be challenging, often limited to the owner's personal savings, retained profits, or small bank loans, which can constrain growth potential. The business has no separate legal status, so its continuity is linked directly to the owner.

A partnership is a business owned by two or more individuals (typically 2-20 in an ordinary partnership). Partners share the responsibilities, risks, and profits. This structure allows for a greater injection of capital and a wider range of skills compared to a sole trader. However, most partnerships still have unlimited liability, meaning all partners are jointly and severally liable for the business's debts. Control is shared, which can lead to disagreements if partners have different visions. A 'Deed of Partnership' is a crucial legal document that outlines profit-sharing ratios, roles, and procedures for a partner leaving, helping to prevent future conflicts. Without one, disputes are settled according to the Partnership Act 1890, which may not suit the partners' original intentions.

A private limited company (Ltd) is an incorporated business, meaning it has its own separate legal identity, distinct from its owners (shareholders). The most significant advantage of this is limited liability: shareholders are only liable for the amount they have invested in shares. Their personal assets are protected. Finance can be raised by selling shares to friends, family, and other private investors, but not to the general public. This allows for more capital than a sole trader or partnership while retaining control within a relatively small group. The business enjoys perpetual continuity, as ownership can be transferred through the sale of shares without disrupting operations. However, setting up an Ltd involves more legal formalities and the company's accounts must be filed publicly.

A public limited company (PLC) is an incorporated business that can offer its shares for sale to the general public via a stock exchange. This provides access to vast amounts of capital, facilitating large-scale expansion, acquisitions, and investment. Like an Ltd, it offers limited liability to its shareholders. However, this access to capital comes at a cost. PLCs face stringent regulatory requirements, including the publication of detailed financial reports, making them subject to intense public and media scrutiny. The original owners often see their control diluted as ownership spreads amongst thousands of shareholders. This can lead to a 'divorce between ownership and control' and makes the company vulnerable to hostile takeovers if its share price falls.