Ownership types and legal structure - Business Studies IGCSE Study Notes

Think of it like choosing the 'rules of the game' for your business. When you start a business, you have to decide who owns it and how it's officially set up in the eyes of the law. This is its legal structure.

There are different ways to set up a business, kind of like how there are different types of houses:

• Sole Trader: This is like owning a tiny treehouse all by yourself. You built it, you own it, you make all the rules, and if it falls down, it's all on you. It's the simplest type of business where one person owns and runs everything.
• Partnership: Imagine you and a friend build a bigger, better treehouse together. You share the work, you share the fun, and you share the responsibility if something goes wrong. A partnership is when two or more people own and run a business together.
• Private Limited Company (Ltd): This is like building a strong, brick house. It's a separate 'person' in the eyes of the law, distinct from its owners. The owners (called shareholders) put in money, but their personal stuff is usually safe if the business gets into trouble. Shares (small pieces of ownership) are sold privately, usually to friends and family, not to the general public.
• Public Limited Company (PLC): This is like building a huge skyscraper! It's also a separate 'person' legally, but it's much bigger. Its shares can be bought and sold by anyone on the stock exchange (a marketplace for buying and selling shares). This allows them to raise huge amounts of money from many different investors.

Let's look at a common example: a local bakery.

1. Sole Trader Bakery: Imagine Mrs. Chen, who bakes amazing cakes from her home kitchen and sells them at the local market. She's the only owner, she makes all the decisions about what to bake and how much to charge, and all the profits (and any debts) are hers. If someone gets sick from a cake, Mrs. Chen is personally responsible.

2. Partnership Bakery: Now, imagine Mrs. Chen teams up with Mr. Lee, who is great at marketing and managing the shop. They open a small bakery together. They share the costs, the work, and the profits. They also share the responsibility if something goes wrong. They are partners.

3. Private Limited Company (Ltd) Bakery: What if Mrs. Chen and Mr. Lee want to open several bakeries across town? They might decide to form a 'Chen & Lee Cakes Ltd'. They would still own most of the company, but they might sell a few shares to their family members or close friends to get more money to expand. The company itself is now a separate legal entity, so if one of the bakeries has a big problem, their personal savings might be protected.

4. Public Limited Company (PLC) Bakery: If 'Chen & Lee Cakes Ltd' became super popular and wanted to open bakeries all over the country, they might become 'Chen & Lee Cakes PLC'. They would sell shares to thousands of people on the stock market to raise a huge amount of money. Anyone could buy a small piece of their company, and the company would be much bigger, with many more owners (shareholders).