Quick questions on Types of business organisation - CCEA A-Level Business Studies AS 1

A sole trader is a business owned and controlled by one person. It is quick and cheap to set up, the owner keeps all profit and makes all decisions, and affairs are kept private. However, the owner has unlimited liability, may struggle to raise finance, carries a heavy workload and the business has no continuity if the owner dies.

A partnership is owned by between two and twenty partners who share capital, decisions and profits, usually governed by a Deed of Partnership. It allows more capital and shared expertise and workload, but ordinary partners have unlimited liability, profits are shared, and disagreements between partners can cause problems.

A private limited company is owned by shareholders (often family and friends) and is a separate legal entity with limited liability. Shares cannot be sold to the general public. It can raise more capital and protect owners' assets, but must register with Companies House, file accounts publicly and follow more rules.

A public limited company can sell shares to the public on a stock exchange and must have share capital of at least 50,000 pounds. It can raise very large sums and has a high public profile, but faces high formation and compliance costs, full public scrutiny, possible loss of control through takeover, and a divorce between ownership (shareholders) and control (directors).

A franchise lets a person (the franchisee) trade under the brand and business format of an established firm (the franchisor) in return for an initial fee and ongoing royalties. The franchisee gains a proven model, brand recognition and support, lowering the risk of start-up, but pays fees, shares profit and has limited independence.

State two features of a sole trader business. [2 marks]

Explain one advantage of operating as a franchise. [3 marks]

Analyse why a business might choose to become a public limited company. [6 marks]