WalesBusinessSyllabus dot point

What are the main legal forms of business ownership, and which should an owner choose?

Types of business ownership: sole traders, partnerships, private limited companies and franchises, the meaning of limited and unlimited liability, the advantages and disadvantages of each form, and the difference between the private and public sectors.

A focused answer to the WJEC GCSE Business content on types of business ownership, covering sole traders, partnerships, private limited companies and franchises, limited and unlimited liability, the pros and cons of each, and the private versus public sector.

Generated by Claude Opus 4.813 min answerUpdated 2026-06-15

Reviewed by: AI editorial process; not yet individually human-reviewed

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Quick answer

Businesses can be owned in different legal forms. A sole trader is one person who owns and runs the business; it is easy to set up and the owner keeps all the profit and makes all the decisions, but they have unlimited liability and carry all the risk alone. A partnership is owned by two to twenty partners who share the work, decisions, profit and finance, but they also share unlimited liability and can disagree. A private limited company (Ltd) is a separate legal body owned by shareholders; its great advantage is limited liability, meaning owners can lose only the money they invest, and it can raise finance by selling shares, but it costs more to set up, must publish accounts and has less privacy. A franchise lets a person (the franchisee) trade under an established brand using a proven business model in return for a fee and a share of sales; it lowers the risk of failure but reduces independence and eats into profit. Limited liability protects the owner's personal possessions; unlimited liability does not, so the owner could lose their home. The private sector is owned by individuals and aims mainly at profit, while the public sector is owned by the government and provides services such as the NHS and state schools. The right choice depends on the risk, the finance needed and how much control the owner wants.

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What this dot point is asking
Liability: the key idea
Sole trader
Partnership
Private limited company (Ltd)
Franchise
Private and public sectors
Why this matters
Try this

What this dot point is asking

WJEC wants you to know the main legal forms of business ownership and how to choose between them. You need the sole trader, the partnership, the private limited company and the franchise, the key idea of limited and unlimited liability, the advantages and disadvantages of each form, and the difference between the private sector (owned by individuals) and the public sector (owned by the government). The most examinable concept is liability, because it decides how much personal risk the owner carries.

Liability: the key idea

Liability decides how much an owner could personally lose if the business fails, so understand it first.

Sole traders and ordinary partnerships have unlimited liability. Companies (Ltd) have limited liability, because in law the company is a separate legal body from its owners.

Sole trader

This is the most common form for new, small businesses such as plumbers, hairdressers and market traders.

Partnership

Partnerships are common among professionals such as solicitors, doctors and accountants.

Private limited company (Ltd)

The "Ltd" after a name signals limited liability and separate legal status.

Franchise

Many high-street names (fast-food outlets, gyms, coffee shops) grow by franchising.

Private and public sectors

Why this matters

Choosing the right ownership form is one of the first decisions an entrepreneur makes, so this topic links to enterprise (the owner's appetite for risk), to finance (companies can raise more capital), and to growth (firms often change form as they expand, for example from sole trader to Ltd). Exam questions usually ask you to recommend a form or analyse a change of form, where liability, finance and control are the points that earn marks.

Recommend an ownership form

A successful sole-trader photographer wants to expand, take on staff and buy expensive equipment, but is worried about the risk.

step Identify the photographer's main concerns

They want more finance for equipment and staff, and they are worried about personal risk if the bigger business runs into trouble.

step Match a form to those concerns

A private limited company gives limited liability, so if the larger business failed the photographer would lose only what they invested, not their home. It can also raise money by selling shares to family, helping fund the equipment.

step Weigh the drawbacks and conclude

The downsides are more paperwork, published accounts and less privacy. Because the photographer is expanding and specifically worried about risk, the protection of limited liability outweighs the extra admin, so becoming a private limited company is the better choice here. A purely cautious owner staying small could remain a sole trader.

Try this

Q1. State one advantage and one disadvantage of being a sole trader. [2 marks]

Cue. Advantage: keeps all the profit and has full control. Disadvantage: unlimited liability (or hard to raise finance).

Q2. Explain one benefit to an owner of limited liability. [2 marks]

Cue. Their personal possessions are protected, so if the business fails they lose only the money invested, which reduces the personal risk of running the business.

Exam-style practice questions

Practice questions written in the style of WJEC exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

WJEC (Unit 1)2 marksExplain what is meant by unlimited liability.

Show worked answer →

A 2-mark AO1 definition with development. Unlimited liability means the owner is personally responsible for all the debts of the business.

Develop it: if the business cannot pay what it owes, the owner may have to sell their own personal possessions, such as their car or even their home, to cover the debts, because in law the owner and the business are the same thing. Sole traders and ordinary partnerships have unlimited liability. Markers reward the definition for one mark and the developed consequence for the second.

WJEC (Unit 1)6 marksA sole trader is thinking of forming a private limited company. Analyse the benefits to the owner of becoming a private limited company.

Show worked answer →

A 6-mark AO1, AO2 and AO3 question. Reward a developed chain applied to the owner.

Benefit one, limited liability: as a private limited company the owner's liability is limited to the money they invest, so if the company fails their personal possessions are protected, which reduces the personal risk of expanding.

Benefit two, raising finance: a limited company can sell shares to family and friends and is often seen as more credible by banks, so it can raise more money to grow than a sole trader could.

Chain and judgement: limited liability and easier finance make incorporation attractive for an owner wanting to grow, but it also brings more paperwork, public accounts and less privacy, so it is worth it mainly if the business is expanding and the protection matters. Markers reward developed benefits applied to the owner plus a balanced comment.

Related dot points

Sources & how we know this

WJEC GCSE Business specification (Wales) — WJEC (2025)
WJEC GCSE Business (Wales) specification (3510) — WJEC (2017)