Quick questions on Business structures - WJEC A-Level Business

A sole trader is owned and run by one person. It is the simplest, cheapest and quickest structure to set up, the owner keeps all the profit and makes all the decisions, and affairs stay private. The drawbacks are unlimited liability, difficulty raising finance (only personal funds and loans), no one to share the workload, and the business ending if the owner stops. It suits small, local start-ups.

A partnership has 2 or more owners who share capital, skills, decisions and (usually) unlimited liability under a deed of partnership. Compared with a sole trader, more capital and a wider range of skills are available and the workload is shared. But profits are shared, decisions can lead to disagreement, and each partner is liable for the others' actions. Partnerships are common among professionals such as solicitors and accountants.

A public limited company (plc) can sell its shares to the general public on a stock exchange (a flotation). This raises large amounts of capital for growth and gives high status. However, flotation is expensive, the company must publish detailed accounts (so there is little privacy), it faces short-term pressure from shareholders for dividends, and it is exposed to loss of control through a takeover if another party buys a majority of shares. The plc suits large firms needing substantial finance.

Not-for-profit organisations (charities, social enterprises, mutuals and co-operatives) exist to pursue a social, community or ethical aim rather than to maximise profit for owners. Any surplus is reinvested in the cause. They may enjoy tax advantages and goodwill, but they still must cover their costs and are accountable to members, donors or regulators.

Define the term limited liability. [2 marks]

Explain one disadvantage of operating as a sole trader. [3 marks]