Choosing Appropriate Business Ownership (Edexcel IGCSE Business): Revision Note

When a business is first established, its owner needs to decide whether to operate as a sole trader or partnership, or form a private limited company

• Businesses that require little start-up capital and are low-risk, can operate effectively as a sole trader or partnership

• Where a large amount of start-up capital is required, or where the business is high-risk, the owner will be better protected if they form a private limited company

As a business grows, its owner may choose to change its legal structure

• A partnership may be formed to attract more capital, bring in new skills or involve others to provide greater stability

• A private limited company may be formed to reduce the increased level of risk, attract new capital or provide for business continuity

Rupa Ling is setting up a small online tutoring business she intends to run from her own home

• Suitable Ownership: Sole Trader

• Explanation:

  • Minimal capital equipment is required to establish the business

  • Unlikely to be risky as running costs are low

Kwame Ofori has invited two friends to join him in running and expanding his successful fashion retail business

• Suitable Ownership: Partnership or Private Limited Company

• Explanation:

  • Growth could be funded through capital investment by friends, who will likely want input in running the business

  • Financial risks are likely low, so a partnership could be appropriate

  • For limited liability protection, they should form a private limited company

L&H Building Supplies' senior partner would like to ensure that her children can run the business after her retirement

• Suitable Ownership: Private Limited Company

• Explanation:

  • Continuity assured as shares can be transferred to new owners without dissolving the business

  • The children benefit from limited liability protection

  • The senior partner can retain ownership through shares even after retirement

Private limited companies that require significant capital to grow could consider a stock market flotation to become a public limited company

• The original owners receive significant financial rewards following flotation but lose some control over the business as ownership is diluted

• The business must meet strict criteria to become a public limited company and follow specific financial rules, such as publishing detailed annual financial reports

Venture capitalists provide an alternative form of finance for business owners who prefer the business to remain privately owned

• In return for a share in the business, these investors provide capital for a determined period of time

• They may be willing to invest in risky enterprises that have failed to secure external finance from other sources, such as banks

Alternatively, private limited companies may enter into joint ventures with other businesses to achieve a specific objective

• A separate limited company is established for the duration of the joint venture and is usually dissolved upon its completion

Family-owned Technologie Przyszłości Ltd requires financing to open two further AI research centres in Poland

• Suitable Ownership: Private Limited Company with venture capitalists

• Explanation:

  • AI is considered risky by traditional lenders like banks

  • Venture capitalists may be attracted by the potential for high returns

  • Opening two research centres is a relatively small-scale project, so large-scale funding from stock market flotation isn't required

  • Family owners can retain control by remaining a private limited company

UK company Brewdog Ltd aims to expand globally following rapid European growth

• Suitable Ownership: Public Limited Company

• Explanation:

  • Ambitious global growth will likely require substantial finance available through stock market flotation

  • The business's recent success could attract significant investor attention, making an IPO attractive