Types of businesses and their legal structures
The Sole Trader
- Recognised as the simplest form of business structure.
- Only one individual who is the exclusive owner of the business.
- The owner has unlimited liability, which means if the business incurs debt, the owner is personally liable.
- There is no distinction between the business and the individual in terms of legal liabilities.
Partnerships
- Similar to the sole trader but is formed with two or more people who share ownership.
- Jointly liable for any business debts or obligations.
- There can be varying levels of input and investment from the partners, often detailed in a partnership agreement.
Private Limited Companies (Ltd)
- Owned by shareholders who each have a portion of ownership in the company, known as shares.
- Liability is limited to the amount invested in the business.
- Shares cannot be sold to the public but can be sold privately, often to family and friends.
- The company does not cease to exist upon the death of a shareholder; the shares are passed onto their next of kin.
Public Limited Companies (Plc)
- Shares are open to be bought and sold on the stock market.
- Adheres to more stringent regulations than a private limited company as they are answerable to its shareholders.
- The owners only have liability for the worth of their investment into the company’s shares, meaning they have limited liability.
- The minimum share capital for a PLC is £50,000.
Cooperatives
- Owned and run by its members.
- Each member has an equal vote regardless of their amount of investment, following a one member one vote rule.
- The profits are divided among the members in relation to the amount of input into the cooperative.
- Cooperatives function by their own rules, providing a democratic organization structure.
Franchises
- A brand allows an owner (franchisee) to use their brand name, products, and business model for a fee.
- The franchisee gains benefit from brand recognition and support from the established company (franchisor).
- The franchisor receives a franchise fee or royalty from the franchisee.
- Although the franchisee has little control over the brand and operation procedures, they do own the franchise outlet.
Nonprofit Organisations
- Primarily focusing on issues for the greater good rather than maximising profit.
- The income generated through their operations is used for the cause they are supporting.
- Although they are not legally required to pay tax as per for-profit companies, they must adhere to charity legal structures.
Social Enterprises
- Operates like a business but reroutes their profits to a specific social cause.
- Aims to be self-sustainable.
- Often revitalising communities or addressing social issues, social enterprises blur the line between non-profit and for-profit.
Multinational Corporations
- Operates in more than one country.
- Able to take advantage of different markets, labour costs and tax laws across the globe.
- They have a huge influence on global politics and economies.
- Includes brands such as Coca-Cola, Apple and McDonald's.