Choosing Appropriate Business Ownership (Edexcel IGCSE Business): Revision Note
Business Ownership for Small Businesses
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
Examples of Suitable Ownership Types for Small Businesses
Example | Suitable Ownership | Explanation |
---|---|---|
|
|
|
|
|
|
|
|
|
Business Ownership for Larger Businesses
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
Examples of Suitable Ownership Types for Large Businesses
Example | Suitable Ownership | Explanation |
---|---|---|
|
|
|
|
|
|
Examiner Tips and Tricks
'State' questions refer to a specific business so you must ensure that you include some context in your response, even though it is worth only one mark
You've read 0 of your 5 free revision notes this week
Sign up now. It’s free!
Did this page help you?