CIE IGCSE Business Studies – Types of Business Organization – Complete Topic
Summary with Key Concepts
Limited Liability When investors only repay for the capital they've invested in the business.
Unincorporated Business When the owners of a business and the business itself are one
legal identity, in addition to having unlimited liability.
Incorporated Business When the owners of a business and the business itself are separate
legal identities, in addition to having limited liability.
Limited Partner A partner with limited liability
General Partner A partner with unlimited liability
Pros of a Sole Trader + few legal requirements
+ owner has full control of the business
+ owner receives all profits after tax
+ can be set up with little capital
+ owner can personally contact customers, thus improving customer loyalty
Cons of a Sole Trader - unlimited liability
- may often lack capital to expand
- owner may lack all the skills needed to appropriately manage the business
Pros of a Partnership + few legal requirements
+ expansion is easier to fund(due to more partners and, thus, more funding)
+ a wider array of skills and expertise are brought into the business
, + responsibilities for decision making and management are shared
+ business risks and financial risks are shared but limited partners have limited liability
Cons of a Partnership - disagreements can occur between partners
- profits are shared
- unlimited liability
- raising additional capital may be difficult depending on the allowed maximum number of
partners (if max is 20, a company with 20 partners can no longer invite another person)
Sleeping/Silent Partner A partner that only provides money and receives profit returns but
isn't involved with management.
Limited Liability Partnership(LLP) Some/all partners have limited liability, but they also have
to retain an automatic management responsibility.
Pros of an LTD. + limited liability
+ separate legal identity
+ shareholders get dividends
+ capital can be significantly increased
+ shareholders elect directors
Cons of an LTD. - there has to be a record for everything in the business
- large shareholders can veto decisions
- shareholders can only sell shares with the consent of all other stockholders
- directors can act on their own interests rather than that of the shareholders
- required by law to hold AGMs with stockholders
Pros of a PLC + limited liability
Summary with Key Concepts
Limited Liability When investors only repay for the capital they've invested in the business.
Unincorporated Business When the owners of a business and the business itself are one
legal identity, in addition to having unlimited liability.
Incorporated Business When the owners of a business and the business itself are separate
legal identities, in addition to having limited liability.
Limited Partner A partner with limited liability
General Partner A partner with unlimited liability
Pros of a Sole Trader + few legal requirements
+ owner has full control of the business
+ owner receives all profits after tax
+ can be set up with little capital
+ owner can personally contact customers, thus improving customer loyalty
Cons of a Sole Trader - unlimited liability
- may often lack capital to expand
- owner may lack all the skills needed to appropriately manage the business
Pros of a Partnership + few legal requirements
+ expansion is easier to fund(due to more partners and, thus, more funding)
+ a wider array of skills and expertise are brought into the business
, + responsibilities for decision making and management are shared
+ business risks and financial risks are shared but limited partners have limited liability
Cons of a Partnership - disagreements can occur between partners
- profits are shared
- unlimited liability
- raising additional capital may be difficult depending on the allowed maximum number of
partners (if max is 20, a company with 20 partners can no longer invite another person)
Sleeping/Silent Partner A partner that only provides money and receives profit returns but
isn't involved with management.
Limited Liability Partnership(LLP) Some/all partners have limited liability, but they also have
to retain an automatic management responsibility.
Pros of an LTD. + limited liability
+ separate legal identity
+ shareholders get dividends
+ capital can be significantly increased
+ shareholders elect directors
Cons of an LTD. - there has to be a record for everything in the business
- large shareholders can veto decisions
- shareholders can only sell shares with the consent of all other stockholders
- directors can act on their own interests rather than that of the shareholders
- required by law to hold AGMs with stockholders
Pros of a PLC + limited liability
