Business organisations, objectives and stakeholders
Businesses can be sole traders, partnerships, companies, franchises or joint ventures. They set objectives and must consider the interests of many stakeholder groups.
📌 Key points
- A sole trader has one owner: easy to set up, the owner keeps all profits and makes all decisions, but has unlimited liability, limited capital and no continuity.
- A partnership has two or more owners who share capital, skills and decisions under a partnership agreement; partners usually have unlimited liability and may disagree.
- Unlimited liability means owners are personally responsible for all the debts of the business; limited liability means owners can lose only the money they invested.
- A private limited company (Ltd) sells shares privately (e.g. to family and friends); it has limited liability, a separate legal identity and continuity, but cannot sell shares to the public.
- A public limited company (plc) can sell shares to the public on a stock exchange, raising large amounts of capital, but must publish its accounts and can be taken over; ownership and control are separated.
- In a franchise, the franchisee pays the franchisor to use its brand and methods; in a joint venture, two or more businesses agree to work together on a project.
- A public corporation is owned by the government and run in the public interest.
- Objectives include survival, growth, profit, market share and customer satisfaction; social enterprises have social, environmental and financial aims (the triple bottom line).
- Stakeholders are people or groups with an interest in a business: owners, employees, managers, customers, suppliers, banks, government and the local community.
- Stakeholder objectives often conflict, e.g. shareholders want higher profits while workers want higher wages.
📖 Key terms
- Unlimited liability
- The owners are personally responsible for all the debts of the business.
- Limited liability
- The liability of shareholders for company debts is limited to the amount they invested.
- Shareholder
- An owner of a limited company.
- Franchise
- A business that uses the name, logo and trading methods of an existing successful business.
- Joint venture
- Two or more businesses agree to work closely together on a particular project.
- Public corporation
- A business in the public sector that is owned and controlled by the government.
- Stakeholder
- Any person or group with a direct interest in the performance and activities of a business.
- Social enterprise
- A business with social objectives that reinvests most of its profits into its social aims.
✏️ Worked example
Amira is a sole trader who owns a busy café. She wants to open a second café. Should she turn her business into a private limited company? Justify your answer.
- Advantage 1: she would gain limited liability, so her house and savings are safe if the business fails.
- Advantage 2: she could raise capital by selling shares to family and friends to pay for the second café.
- Disadvantage 1: she would share ownership and some control with other shareholders.
- Disadvantage 2: there are legal formalities and costs to set up a company, and accounts must be filed.
- Conclusion: yes, as expanding raises her risk, so limited liability and extra capital matter more than sharing some control.
In ‘should’ questions, give arguments on both sides, then a clear decision with a reason that uses details from the case study.
Test yourself8 questions from a bank of 16. A new mix every time.
Start the quiz →