OCR GCSE Business (1-9)

Business 1 (01)

1.3 Business ownership

From the OCR specification

• The features of different types of business ownership– Sole traders, partnerships, private and public limited

companies

• The concept of limited liability

• The suitability of differing types of ownership in different business contexts– Start-ups and established businesses

Worksheet

Lesson objectives• To be able to identify the features of different

types of business ownership

• To be able to describe the concept of limited liability

• To be able to discuss the suitability of differing types of ownership in different business contexts

Starter• Have you ever been to

the dentist?

• Have you ever needed to send a pet to the vet?

• Have your family ever used a solicitor?

TO BE ABLE TO IDENTIFY THE FEATURES OF DIFFERENT TYPES OF BUSINESS OWNERSHIP

Sole trader

Business owned by one owner

Also known as a sole proprietor

Can employ people but they will not be involved in control of business

Sole traders must pay tax on their profits

Has unlimited liability

Sole trader

• Example of sole trader businesses:

• Small shops

• Plumbers

• Electricians

• Cleaners

Click the image below to start the video

• What do you think are the advantagesand disadvantages of running a business on your own?

Partnership

• Between 2 – 20 partners

• Partners = joint owners of the business

• May do decision making themselves or employ manager

• Unlimited liability

• Profits shared = to capital invested

Examples of partnership businesses:

• Doctors

• Dentists

• Accountants

• Solicitors

• Vets

• What do you think are the advantagesand disadvantages of having a partnership?

PRIVATE LIMITED COMPANYLTD

• Made up of people who know each other.

• Friends and family can buy shares in the business, this will make them part owners

• Shares cannot be bought by the public

• Owners control who buys the shares• Minimum 2 people – no maximum• Expand by selling more shares, giving

the business more capital• Normally medium sized businesses• Limited liability, those that own or

buy shares in the business can only lose their original investment, their private assets remain safe

Private limited company: Ltd

• Shares can ONLY be sold to friends and family

• Minimum 2 people – no maximum

• Business can expand by selling more shares to raise finance

• Limited liability

Examples of LTD businesses:

• Eddie Stobart Ltd

• History here• Raleigh UK Ltd• History here

• What do you think are the advantagesand disadvantages of being a limited company are?

Public limited company: plc

• Shares can be bought and sold by anyone on the Stock Exchange

• Can expand by selling more shares

• Limited liability

• Company has its own legal status

• Normally start as LTD then become PLC

• Normally very large businesses

Examples of PLCs

• Tesco plc

• Barclays plc

• Unilever plc

• BT group plc

• BP plc

• Rolls Royce Holdings plc

• What do you think are the advantagesand disadvantages of being a plc are?

TO BE ABLE TO DESCRIBE THE CONCEPT OF LIMITED LIABILITY

Limited liability

Limited liability protects a business owner’s personal

funds from being used to pay business debts.

Click the image below to start the video… (5 mins)

Limited liability

• This means that the funds of the business are separate from those of the owner

• If anything goes wrong, the owner will NOT have to sell their own car or house to pay the debts of the business

• Limited liability is a good thing!

TO BE ABLE TO DISCUSS THE SUITABILITY OF DIFFERING TYPES OF OWNERSHIP IN DIFFERENT BUSINESS CONTEXTS

Start-ups

• A business may start as a sole trader or partnership

• Some businesses may start as a limited company

• As a business grows and expands it may want to enjoy limited liability so may change from a sole trader or partnership into a limited company (ltd)

• As the business gets bigger it will want to raise finance by floating shares on the stock exchange so will want to become a PLC

Sample questions

Sample question 1

Answer sample question 1

(a) A partnership cannot issue shares.

(b) A private limited company can issue

shares, but it cannot sell them on the stock

exchange.

(c) Correct answer: A public limited

company is listed on the stock exchange.

(d) A sole trader cannot issue shares.

Sample question 2

[1]

Answer question 2

(a)Correct answer: Must have a minimum of two partners.

(b)All businesses have external stakeholders e.g. suppliers, customers, government, local community.

(c)Companies, rather than partnerships, have shareholders.

(d)A partnership is a private enterprise and, is therefore, no government controlled.

Sample question 3

[1]

Answer question 3

(a)Sole traders may choose to advertise online, but they do not have to.

(b)A sole trader can choose whether or not to employ staff.

(c)Many sole traders operate from home, but they do not have to.

(d)Correct answer: One effect the government has on all businesses is that it requires payment of tax on any profit made.

Sample question 4

[1]

Answer question 4

(a)All businesses must obey employment law.

(b)Candidate confuses limited liability with market limitations, in this case a geographical limitation.

(c)Correct answer: Limited liability protects a business owner’s personal funds from being used to pay business debts.

(d)A business is always free to change its objectives; indeed a periodic review is advised.

Sample question 5

[1]

Answer question 5

Correct answer:

Option D Shared responsibility

Glossary• Start-up; a newly established business• Sole trader; a person who is the sole owner of a

business, it has unlimited liability• Partnership; a business which has between 2 and

20 owners, it has unlimited liability• Private limited business (ltd); this is a business

which can sell shares to friends and family and enjoy limited liability

• Public limited business (PLC); this is a business which can sell shares on the stick exchange and enjoys limited liability

State and explain one advantage and one disadvantage of a business

operating as a plc

Advantages• Due to shares being floated on the SM Brit Air plc will be able to raise

large funds for investment hence it may become more competitive • Shareholders have limited liability allow ‘company has limited liability • Banks more willing to lend to plc’s ie, financial economies thus easier to

obtain capital for expansion Disadvantages• Can be a target for a takeover• Increased public accountability• Loss of control as the business are answerable to its shareholders • Allow ‘£50 000 to set up’• Allow ‘anyone’ can buy shares thus open to hostile takeover • Allow ‘lots of paper work’, ‘very complex’• Allow ‘have to publish accounts therefore competitors can see them • Allow ‘big company thus difficult to control’

Resources written by Sarah Hilton for revisionstation.co.uk