forms of a business

• Key forms of business in the private sector

  Unincorporated - Sole Traders and Partnerships

  Incorporated - Private Limited Company and Public Limited Company
• Unincorporated :

  • The owner is the business - no legal difference

  • Owner has unlimited liability for business actions (including debts) • Most unincorporated businesses operate as sole traders
• Incorporated :


  • There is a legal difference between the business (company) and the owners

  • The company has a separate legal identity

  • Owners (shareholders) have limited liability

  • Most incorporated businesses operate as private limited companies
• Unlimited Liability :


  • Unlimited liability is a crucially important characteristic of unincorporated businesses.

  • Business owner/s is personally responsible for the debts and liability of the business

  • If the unincorporated business fails, the owners are liable for the amounts owed
• Adv of a Sole Trader

  Quick & easy to set up – business can always be transferred to a limited company once launched

  Simple to run – owner has complete control over decision-making Minimal paperwork

  Easy to close / shut down
• Disadv of a Sole Trader

  Full personal liability – “unlimited liability”

  Harder to raise finance – sole traders often have limited funds of their own and security against which to raise loans

  The business is the owner – the business suffers if the owner becomes ill, loses interest etc.

  Can pay a higher tax rate than a company
• Main Features of a Limited Company

  • Limited companies are separate legal entities to the founders. A legal entity can own things itself (assets), can sue and be sued;

  • Companies are owned by their shareholders and run by directors. The shareholders appoint the directors (often the same people) who run the company in the interests of the shareholders;
• Main Features of a Limited Company

  • Shareholders own a share of the company, but they do not own the assets of the company and they are not liable for the debts of the company;

  • The company owns the assets and pays the debts. If the company becomes insolvent (i.e. it cannot pay its debts), then the company is closed;

  • Shareholders are not liable for any debts owed by the company that cannot be settled. That is the importance of limited liability;
• Adv of Limited Company

  Limited liability – protects the shareholders (the big advantage) Easier to raise finance – both through the sale of shares and also easier to raise debt

  Stable form of structure – business continues to exist even when shareholders change
• Disadv of Limited Company

  Greater administration costs

  Public disclosure of company information

  Directors’ legal duties
• Public Limited Companies


  • A public company is simply a more specialist type of limited company

  • Shares may be quoted and traded on a public stock market (but don’t have to be)

  • When traded on a stock market, public companies have substantially more shareholders

  • Public companies are subject to significantly greater reg
• Not-for-profit organisations


  Businesses that trade in order to benefit the community. These businesses have social aims as well as trying to make money