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Summary Forms of Ownership
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Describes unlimited and limited liability, types of legal structure (e.g. sole trader, plc, Ltd, partnership), and franchising
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Theme 1 Topic 3Forms of Ownership
Legal Structure of Business in the Private Sector
Unincorporated – there is no distinction in law between the individual owner and the business itself
– the identity of the business and the owner is the same
– Sole Traders and Partnerships
Incorporated – this has a legal identity that is separate from the individual owners
– these organisations can own assets, owe money and enter into contracts in their own right
– Private Limited Companies and Public Limited Companies
Unlimited vs Limited Liability
Unlimited Liability – the owners of a business are liable for all the debts that the business may incur.
Limited Liability – the shareholders of a business have no responsibility for paying the debts incurred by their
business as long as they have paid in full for the shares they have purchased. Their personal assets cannot be
used to pay the debts of the business. Liability is limited to the share capital invested by the owner.
Types of Legal Structure
Sole Trader – a business owned by one person. The owner may operate on their own or may employ other
people.
Little capital available for expansion
Mot basic form of ownership
Owner usually does most of the day to day and administrative work
Keep all profits and control
UNLIMITED LIABILITY
Partnership – two or more people operate for the common goal of making a profit.
Maximum of 20 partners
More than one person invests in the company
ACTIVE PARTNERS vs SLEEPING PARTNERS
Partners are advised to draw up a ‘deed of partnership’ (a legal document showing how control and
profits are shared between the owners)
Most have UNLIMITED LIABILITY
Limited Partnership Limited Liability Partnership
Can be formed when at least one partner assumes All the partners have LIMITED LIABILITY like
responsibility for running the business and other incorporated businesses.
partners are not involved other than investing Introduced in 2000 when the Limited Liability
capital. Partnership Act came into force.
Active Partners have UNLIMITED LIABILITY whereas
Sleeping Partners have LIMITED LIABILITY as their
actions have no effect on the business.
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