Unincorporated businesses
The simplest form is the sole trader: one person owns and runs the business. It is easy to set up and the owner keeps all profit, but the owner has unlimited liability, meaning personal possessions can be used to pay business debts. A partnership has two or more owners who share capital, decisions and profits; they usually sign a partnership agreement, but partners also have unlimited liability.
Key idea
Limited liability means owners can only lose the money they invested. Unlimited liability puts personal assets at risk.
Incorporated businesses
A private limited company (Ltd) is a separate legal body owned by shareholders who have limited liability. Shares cannot be sold to the public, so control stays within a small group. A public limited company (plc) can sell shares to the public on a stock exchange, which raises large amounts of capital but means owners may lose some control and must publish their accounts.
Example
A family bakery may register as an Ltd so the family keeps control while gaining limited liability. A national supermarket chain may become a plc to raise capital for expansion.
Choosing a form
The best choice depends on the finance needed, how much risk the owners will accept, and how much control they want to keep. A sole trader who needs more capital and wants to reduce personal risk might convert to a private limited company as the business grows.
Remember
- Sole trader and partnership: unlimited liability.
- Ltd and plc: separate legal body, limited liability.
- Only a plc can sell shares to the public.