Types of business ownership: sole trader, partnership, private limited company and public limited company, with their advantages and disadvantages, and the meaning of limited and unlimited liability.

What this dot point is asking

You need to know the main types of business ownership in the private sector, the sole trader, the partnership, the private limited company (Ltd) and the public limited company (plc), the advantages and disadvantages of each, and the key idea that separates them: limited versus unlimited liability. CCEA examiners reward precise definitions, balanced comparison, and the ability to recommend the right structure for a described business. Choosing the legal form affects who owns and controls the firm, who keeps the profit, and how much personal risk the owners carry.

Sole trader

A sole trader is a business owned and run by one person, the most common type of business in Northern Ireland.

Partnership

A partnership is owned by two or more people (usually between two and twenty), who share the running of the business, often under a deed of partnership setting out how profits and decisions are divided.

• Advantages: more capital and more skills than a sole trader, shared workload and shared decisions, and still fairly easy to set up.
• Disadvantages: unlimited liability (each partner is liable for the business's debts), profit is shared, and partners can disagree; one partner's mistake can bind the others.

A partnership suits professions such as doctors, solicitors and accountants, where pooling skills and capital helps but the firm stays relatively small.

Limited companies and liability

A company is a business with a separate legal identity from its owners. This is the crucial difference, because it gives the owners limited liability.

A private limited company (Ltd) can sell shares only privately, to family, friends and chosen investors, not to the public. A public limited company (plc) can sell shares to the public on the stock exchange, which raises large amounts of capital but means a loss of control and public scrutiny. Forming a company gives limited liability and easier access to capital, but accounts must be filed publicly and there is more paperwork and cost.

Worked example: choosing the right ownership

CCEA often asks you to recommend a structure, which means matching the features to the business.

Why this matters

The type of ownership shapes everything about a business: who controls it, who keeps the profit, how much can be raised to grow, and how much the owners stand to lose. As a business grows, it often changes structure, for example a sole trader becoming a private limited company to gain limited liability and raise capital, which links forward to business growth and sources of finance. In the exam, the most valuable skill is to recommend and justify a structure for a specific business rather than just list features, because that shows you can apply the ideas.

Try this

Q1. State two advantages of being a sole trader. [2 marks]

• Cue. Any two: keeps all the profit, easy and cheap to set up, full control, accounts stay private.

Q2. What is the difference between a private limited company and a public limited company? [2 marks]

• Cue. A private limited company sells shares only privately to chosen people; a public limited company can sell shares to the public on the stock exchange.

Q3. Why might a sole trader form a limited company? [2 marks]

• Cue. To gain limited liability so personal assets are protected, and to raise more capital by selling shares.