1. Types of Businesses

Business ownership affects finance, control, liability and objectives.

Must know

• Distinguish sole traders partnerships companies and cooperatives.

• Limited liability protects shareholders within its legal scope.

• Public and private sectors have different ownership structures.

Must know definitions

Sole proprietor: a business owned and run by one person with unlimited liability.

Partnership: a business owned by two or more people who share profits and liability.

Private limited company (Ltd): a company that raises capital by selling shares privately, with limited liability for shareholders.

Public limited company (Plc): a company that can sell shares to the public on a stock exchange, with limited liability for shareholders.

Not-for-profit organisation: an organisation that reinvests any surplus into its cause rather than distributing it to owners.

Co-operative society: a business owned and democratically controlled by its members.

Joint venture: an agreement where two or more businesses share markets, IP, assets, knowledge, and profits without fully merging.

Private sector: organisations owned and controlled by private individuals or shareholders, typically profit-driven.

Public sector (state-owned): organisations owned and controlled by the government, typically set up to provide a service.

Explain and apply

Mechanism in brief: Limited liability restricts owners' exposure and can encourage investment. Wider share ownership may raise finance while separating control from ownership, creating scope for managers to pursue different objectives.

Distinguish: Public limited company does not mean state-owned; being large does not by itself determine a firm's legal form.

Use the extract: Use ownership, liability and sources of finance in the extract; do not infer legal form from size alone.

Private sector organisations

• A sole proprietor is a business owned and run by one person, who keeps all the profit but also bears unlimited liability for any losses or debts.

• Most local shops, hairdressers, and freelance tradespeople operate this way.

• A partnership is a business owned by two or more people who share the profits, decision-making, and liability for the business.

• Common among professionals such as solicitors or accountants (e.g. many law and accountancy firms are structured as partnerships).

• A private limited company (Ltd) raises capital by selling shares privately (not to the general public) — for example, Dyson Ltd.

• A public limited company (Plc) can sell shares to the general public on a stock exchange, allowing it to raise much larger amounts of capital — as Tesco Plc and HSBC Holdings Plc do on the London Stock Exchange.

• In both Ltd and Plc structures, shareholders benefit from limited liability: they can only lose the amount they invested, not their personal assets — a key incentive for outside investors to buy shares.

• Private sector businesses are not always run purely for profit:

• A for-profit organisation aims to maximise returns for its owners or shareholders.

• A not-for-profit organisation (e.g. Oxfam, a registered charity) reinvests any surplus into its stated cause rather than distributing it to owners.

• A co-operative society is a business owned and democratically controlled by its members — often its workers or customers — who share in the profits and decision-making rather than external shareholders.

• The John Lewis Partnership in the UK is a well-known example, as it is owned by its employees ("partners"), who share in its annual profits.

• A joint venture is where two or more businesses form a partnership to share markets, intellectual property, assets, knowledge, and profits, without fully merging into one company.

• Sony Ericsson is a historical example of a joint venture combining consumer electronics and telecommunications expertise. Sony completed its acquisition of Ericsson’s 50% stake on 15 February 2012, ending the joint venture and making the business wholly owned by Sony.

• This structure lets firms combine strengths while limiting the risk each firm takes on alone.

Private sector vs. state-owned (public sector) organisations

• A private sector organisation is owned and controlled by private individuals or shareholders and typically aims to generate a profit within a competitive market.

• A state-owned (public sector) organisation is owned and controlled by the government, and is typically set up to provide a service rather than to maximise profit.

• The UK's National Health Service (NHS) and nationally-owned rail infrastructure (Network Rail) are examples of public sector provision.

Public sector provision is often justified where

a good generates positive externalities (e.g. healthcare, education), or

an industry is a natural monopoly with very high fixed costs (e.g. water supply, where duplicating pipe networks would be hugely wasteful).

In both cases, leaving provision purely to the market would under-provide a service judged to be of wide social benefit.

Private sector organisations, in contrast, face stronger profit incentives and market competition, which can push them toward greater efficiency — but may also mean goods with high social value but low profitability are under-provided if left entirely to private firms.

Rapid recap

Legal form determines ownership, liability and financing options. A public limited company is not the same as a public-sector organisation.

Related chapters: Unit 3 chapter 2 (p. 8) · Unit 3 chapter 3 (p. 13)