Business Ownership and Liability
Who owns a business, and who pays if it fails? Learn the main types of ownership, the vital difference between limited and unlimited liability, and how a franchise works.
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Whose business is it?
When you start a business, two big questions are: who owns it, and who is responsible for its debts? The answers depend on the type of ownership you choose.
The main types
These are the common ways to own a small business:
Who pays the debts?
Liability decides how much of your own money is at risk.
Protected owners
Which type of business gives its owners limited liability?
- A private limited company
- A sole trader
- A partnership
- None of them
Who owns it?
- Sole trader
- Partnership
- Private limited company
- Franchise
- One person owns and runs the whole business
- Two or more people own it together
- Owned by shareholders with limited liability
- Trades under an established brand for a fee
Buying a brand
A franchise lets someone trade under an established brand. The franchisee pays fees to the franchisor and follows their rules, but gets a known name, training and support. It lowers the risk of starting from nothing, though it costs a share of the profit.
Franchise perks
Which THREE are advantages of running a franchise?
- A well-known brand from day one
- Training and support from the franchisor
- Lower risk than starting alone
- No fees at all to pay
- Complete freedom to do anything
A growth story
Put this common growth path for a business in the right order.
- One person starts as a sole trader
- They take on a partner to share the work
- The firm grows and becomes a private limited company
- Limited liability helps it attract investment
Complete the idea
A _____ is owned by just one person, who has _____ liability and could lose personal assets. A private limited company is owned by _____ and gives them _____ liability, so they only risk what they invested. A _____ lets an owner trade under an established brand for a fee.
True or not?
Tap the TWO statements that are true about business ownership.
- A sole trader has unlimited liability for the debts.
- Shareholders in a private limited company have limited liability.
- A partnership always has just one owner.
- Limited liability puts the personal home of the owner at risk.
- A franchise is always free to run.
Main advantage
- Sole trader
- Partnership
- Private limited company
- Franchise
- Keeps all the profit and makes every decision
- Shares the workload and brings in more skills
- Protects owners with limited liability
- Starts with a known brand and support
Which structure?
Recommend the best ownership type for each business.
- One person wants to start a small market stall cheaply and keep full control. Which structure fits best?
- Two friends want to open a cafe together, sharing the costs and skills. Which structure fits best?
- A growing firm wants to protect its owners from personal debt risk. Which structure fits best?
By personal risk
Order these from the lowest personal risk to the highest.
- Private limited company: owners risk only what they invested
- Partnership: partners share unlimited liability
- Sole trader: one owner bears all the risk
Explain liability
Explain the difference between limited and unlimited liability, and advise a business owner.
- Explain what unlimited liability means
- Explain what limited liability means
- Give one ownership type for each
- Advise an owner who wants to protect their personal assets