1.2 Types of organisations
- Syllabus
- 2026
- Topic
- 1.2
- Level
- —
Learning objectives
1.2.1Business ownership typesThe main types of business ownership:• sole trader• partnerships• limited companies (private and public)• public corporations.1.2.2Business size characteristicsCharacteristics relating to size:• concepts of risk, ownership and limited liability• public corporations – reasons for and against public ownership• ownership, control, sources of finance, use of profits, stakeholders and shareholders• appropriateness of different forms of ownership.1.2.3Business organisation formsDifferent forms of business organisation:• franchises• social enterprises• multinationals.
Identify the main forms of business ownership
| Form | Who owns it? | Defining feature |
|---|---|---|
| sole trader | one individual | the owner makes the decisions and keeps the profit after costs |
| partnership | two or more partners | partners contribute resources and share decisions, profit and responsibility under their agreement |
| private limited company (Ltd) | private shareholders | shares are not offered for public trading; owners have limited liability |
| public limited company (plc) | shareholders, including members of the public | shares can be traded publicly, such as on a stock exchange; owners have limited liability |
| public corporation | the state/government | operated under public ownership to pursue government and public-service objectives |
Ownership determines who supplies capital, controls decisions, receives profits and bears risk. A sole trader gains independence but carries the burden alone; partnership adds capital and skills but can slow decisions if partners disagree; limited companies can attract shareholders while separating ownership from day-to-day control.
A public limited company is privately owned by shareholders even though its shares are public. A public corporation is state-owned. The word ‘public’ does not make them the same form.
Choose ownership by risk, control, finance and purpose
The appropriate ownership form is the one whose risk, control, finance and purpose fit the business—not simply the largest form.
| Form | Liability/risk | Control | Main finance route | Use of profit | Often appropriate when… |
|---|---|---|---|---|---|
| sole trader | owner usually has unlimited liability | one owner controls decisions | owner savings, retained profit, loans | belongs to owner after costs/tax | small scale, quick decisions and independence matter |
| partnership | partners usually share unlimited liability | decisions shared under agreement | partners’ capital, retained profit, loans | shared between partners | pooled skills/capital outweigh possible disagreement |
| private Ltd | shareholders have limited liability | shareholders own; directors manage; shares stay private | private share issues, retained profit, borrowing | retained or distributed to shareholders | growth and liability protection are needed without public share trading |
| public plc | shareholders have limited liability | shareholders elect directors; ownership may be dispersed | public share issues, retained profit, borrowing | retained or distributed to shareholders | very large finance needs justify greater disclosure and ownership dilution |
| public corporation | financial risk ultimately rests with public ownership | government appoints/oversees management | government funding, revenue and borrowing | retained for service/investment or returned to government | essential or strategic services and social objectives dominate |
A shareholder owns one or more shares. A stakeholder is any individual or group interested in or affected by the business, so employees, customers and government can be stakeholders without being shareholders. Limited liability means shareholders can normally lose only what they invested; it does not guarantee the company will survive.
| Public ownership case | Mechanism |
|---|---|
| reason for | services can be provided for access, reliability or long-term public benefit even when short-run profit is low |
| reason against | weak competitive pressure or political interference may reduce efficiency; losses and investment can burden taxpayers |
Judge suitability from the business context: capital required, owners’ willingness to share control, exposure to debt, desired continuity, disclosure burden, service purpose and stakeholder effects.
Limited liability protects shareholders’ personal assets from company debts; it does not remove commercial risk, prevent share-value losses or make managers personally immune from unlawful conduct.
Distinguish franchises, social enterprises and multinationals
| Form | Structure and purpose | Main benefit | Main limitation |
|---|---|---|---|
| franchise | a franchisor allows a franchisee to trade using its brand and business system in return for fees/royalties | franchisee receives an established model, training and support; franchisor expands using franchisees’ capital | franchisee sacrifices freedom and pays fees; poor franchisee performance can damage the brand |
| social enterprise | trades as a business with a primary social or environmental purpose | trading income can sustain a mission and build stakeholder support | social purpose can conflict with cost, price, growth or profit pressures |
| multinational | owns or operates business activities in more than one country | accesses wider markets, resources and possible scale/cost advantages | coordination, cultural/legal differences and reputational or stakeholder risks increase |
The franchisor owns the system and grants the right to use it; the franchisee invests in and operates a local outlet under agreed rules. Growth for one party is therefore not the same as independence for the other.
These forms answer different questions: franchise describes a method of expansion and contractual relationship; social enterprise describes the organisation’s primary purpose; multinational describes its international operating scope. A business can fit more than one description.
A franchisee is not an employee and profit is not guaranteed. A social enterprise still trades and must remain financially viable. Exporting occasionally does not alone make a business multinational; it must operate business activities in more than one country.