Unit 1 - Introduction to Business Management
1.2 – Types of Business Entities
Business entities are the legal and organizational structures used to operate a business. They affect ownership, liability, raising finance, taxes, and decision-making styles. Selecting the right entity is a critical step for new and expanding organizations.
Sole Traders (Sole Proprietorships)
Definition:
A sole trader is a business owned and operated by one individual, with no legal distinction between the owner and the business.
- Ownership: Single person
- Liability: Unlimited (personal risk for debts)
- Control: Full – owner makes all decisions
- Finance: Personal savings, loans
- Examples: Local shops, freelancers, tradespeople
Partnerships
Definition:
A partnership is a legal form where two or more people share ownership, investment, decisions, risks, and profits of a business.
- Ownership: 2–20 partners (in most countries)
- Liability: Usually unlimited (except in Limited Partnerships/LLPs)
- Decision-making: Shared (as agreed in partnership agreement)
- Finance: Partners contribute capital
- Examples: Law/accounting firms, medical partnerships, family businesses
Companies
Privately Held Companies (Ltd/LLC)
- Ownership: Private shareholders (often family, founders, investors)
- Liability: Limited to amount invested
- Legal identity: Separate from owners
- Share transfer: Restricted – shares not sold on open markets
- Examples: IKEA (priv), local SMEs
Publicly Held Companies (PLC/Inc)
- Ownership: Shares traded on stock exchange (owned by public, institutional investors, etc.)
- Liability: Limited to investment
- Legal identity: Separate, can contract/sue
- Share transfer: Freely sold
- Examples: Apple, Shell, Tata Steel
Private & Public Sector Companies
Private Sector
- Ownership: Individuals, families, corporates
- Aim: Profit maximization, innovation
- Funding: Private investment, profits, bank loans
- Examples: Unilever, Samsung, start-ups
Public Sector
- Ownership: Government, state agencies
- Aim: Service & social benefit, not profit
- Funding: Tax, government budgets
- Examples: NHS, national railways, police
Cooperatives (Co-ops)
Definition:
A cooperative is a democratic business entity owned and controlled by its members (producers, customers, workers), who share the profits, benefits, and decision-making.
- Ownership: Members (“one member, one vote”)
- Aim: Serve members’ interests first
- Profits: Shared – based on usage/contribution
- Examples: Credit unions, farmers’ co-ops, The Co-op (UK)
NGOs (Non-Governmental Organizations)
Definition:
An NGO is a not-for-profit organization that operates independently from the government to address social, humanitarian, or environmental issues.
- Ownership: Run by board/trustees, no shareholders
- Aim: Social cause, not profit
- Funding: Donations, grants, memberships
- Profits: Reinvested in mission, not distributed
- Examples: Oxfam, GreenPeace, Red Crescent
Comparison Table: Business Entities
| Entity | Ownership | Liability | Profit | Purpose | Examples |
|---|---|---|---|---|---|
| Sole Trader | Individual | Unlimited | Owner keeps all | Profit, autonomy | Corner shop, freelancer |
| Partnership | 2–20 partners | Unlimited (usually) | Shared | Combine skill/resources | Law firm, doctors' office |
| Private Company | Private shareholders | Limited | By shareholding | Profit, growth, continuity | IKEA, local tech firm |
| Public Company | Public (shareholders) | Limited | Dividend to shareholders | Large scale, expansion | Apple, Tesla, Tata |
| Cooperative | Members | Limited (usually) | Shared by use/contribution | Member service, community | The Co-op, credit union |
| NGO | Board/trustees, none | Limited | Reinvested | Social, humanitarian | Oxfam, Red Cross |
| Public Sector | Government | Usually limited | No distribution | Public service | NHS, state schools |
Summary: Choosing a Business Entity
- Liability: Do owners risk personal assets? (Limited vs Unlimited liability)
- Control: How many owners, who decides?
- Profit: Who receives profit or benefit?
- Purpose: For-profit, social, service, or mixed?
- Suitability: Entity must fit resources, aims, and values of the business idea.
No single type is best; it depends on your vision, goals, and resources.