Business ownership structures
There are four main UK ownership structures. A sole trader is owned and run by one person, is unincorporated, and is quick and cheap to set up.
Before you start
Make sure you're comfortable with these topics first:
Method
- Learn the four main structures and match a definition to each: sole trader, partnership, private limited company (Ltd), and public limited company (plc).
- Learn the precise meaning of limited liability, the owner only loses what they invested, versus unlimited liability, the owner is personally liable for all business debts, with personal assets at risk.
- Learn which structures have limited liability (Ltd, plc) and which are unlimited by default (sole trader, ordinary partnership).
- For state or identify questions on a structure named in a case, quote the structure or its clue, e.g. Ltd in the company name, with no explanation required.
- For explain questions on why an owner chose a structure, give one advantage or disadvantage point and link it to a consequence for that specific owner.
- For justify or recommend questions, weigh at least one advantage against one disadvantage of the structure being considered, then give a decision that refers back to the case details, such as how much capital is needed or how much control the owner wants to keep.
- Learn that changing structure, for example from sole trader to Ltd, is a common way businesses grow, covered fully in GB1.5 and GB2.1.
Worked example
Kofi runs a mobile car valeting business on his own as a sole trader. He wants to expand by buying two more vans and taking out a large loan to do so, but he is worried about the financial risk if the expansion fails. Explain one reason why becoming a private limited company (Ltd) might reduce Kofi's financial risk.
- Identify the ownership structure Kofi currently uses: sole trader, which has unlimited liability.
- Identify what unlimited liability means for Kofi: if the business cannot repay the loan, his personal possessions, such as his house or savings, could be used to pay the debt.
- Identify what changes if Kofi becomes a private limited company: the business gains limited liability and becomes a separate legal entity from Kofi.
- Link this to the risk of the loan: if the expansion fails and the company cannot repay it, Kofi would only lose the money he has invested in shares, not his personal possessions.
- Write the explained answer, combining the change in liability with its effect on Kofi's personal financial risk.
Practice questions
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Q1State the ownership structure that has one owner and unlimited liability.Show answer
Answer: Sole trader.
Q2Identify the abbreviation added to the end of a private limited company's name.Show answer
Answer: Ltd.
Q3State the number of owners a standard partnership usually has.Show answer
Answer: Between two and twenty partners.
Q4Explain the difference between limited and unlimited liability in one sentence.Show answer
Answer: With limited liability an owner can only lose the money they invested in the business, while with unlimited liability the owner is personally responsible for all the business's debts.
Q5Give one document that partners typically draw up when forming a partnership.Show answer
Answer: A Deed of Partnership.
Q6State where the shares of a public limited company (plc) can be bought and sold.Show answer
Answer: On the stock exchange, by members of the public.
Q7Name a well-known UK public limited company.Show answer
Answer: For example, Tesco plc or Marks and Spencer plc.
Exam-style questions
Written in the style of a GCSE Business exam paper, with a full mark scheme.
Explain one advantage and one disadvantage of Kofi remaining a sole trader rather than forming a private limited company.
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Amara currently runs her bakery as a sole trader. She is considering changing to a private limited company (Ltd) so she can raise more money from a small number of investors, but she does not want to lose day-to-day control of the business or make her finances public in detail. Justify whether Amara should change her business to a private limited company.
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See real GCSE Business past-paper questions, with official mark schemes →
Free printable worksheet
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