Quick questions on Types of business organisation: sole trader, partnership, Ltd, plc - SQA National 5 Business Management

One owner who provides all the capital, makes all the decisions and keeps all the profit. Quick and cheap to set up with few legal formalities, and the owner has full control and privacy. The drawbacks are unlimited liability, difficulty raising finance, long hours, and no one to share decisions or cover illness.

Between 2 and 20 partners share the capital, the workload, the decisions and the profits, usually under a partnership agreement (a Deed of Partnership). More capital and a wider range of skills are available than for a sole trader, and the burden is shared. The drawbacks are unlimited liability, shared profit, and the risk of disagreements between partners.

A separate legal body owned by shareholders, often a family or small group, who have limited liability. Shares cannot be sold to the public, which keeps control within the group, and the company can raise more capital than a sole trader or partnership. The drawbacks are the cost and paperwork of registering with Companies House, the duty to publish annual accounts (so less privacy), and profits shared as dividends.

A larger separate legal body that can sell shares to the public on the stock exchange, raising very large amounts of capital. Shareholders have limited liability. The drawbacks are high set-up and legal costs, full public disclosure of accounts, the risk of a takeover if someone buys enough shares, and a possible loss of control as ownership is spread widely.

A franchisee pays a franchisor a fee (and usually a share of sales) to trade under an established brand and business format, such as a well-known fast-food chain. The franchisee gains a trusted name, training, support and lower-risk start-up; the drawback is the ongoing fees and the loss of independence, because the franchisor sets the rules.

A third sector organisation run to support a cause, funded by donations, fundraising and trading. Surpluses are reinvested in the cause, and registered charities receive tax advantages, but they rely on volunteers and uncertain income.

A business that trades to make a profit but reinvests that profit to achieve a social or environmental aim, rather than paying it to owners. It blends commercial trading with a social mission.

Owned and run by central or local government to provide public services, funded mainly by taxation. Examples include the NHS, state schools and local councils, and public corporations such as the BBC. The aim is to provide a service to the whole community rather than to maximise profit.

Identify one disadvantage of unlimited liability for a sole trader. [1 mark]

Describe two advantages of forming a partnership rather than trading as a sole trader. [2 marks]

Outline two reasons a business might become a plc. [2 marks]