Choose the Structure
How to choose the right legal structure for a business: weighing up control, finance, liability and profit, and matching the structure to a start-up or an established business.
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Picking a structure 🏢
When someone sets up a business they must choose a legal structure, such as a sole trader, a partnership or a private limited company. The best choice depends on the business: how much control the owner wants, how much money it needs to raise, how much risk the owner can take, and how the profit will be shared. This module looks at how to weigh these up.
Words for the choice 🔑
Learn these four terms before you weigh up the structures.
Sole trader or company? 🆚
The choice is often a trade-off between control and safety.
Grade 9 thinking 💡
A top answer judges the structure against the particular business and its stage, not in general. A brand new business with little money often starts as a sole trader, while a growing, established business may become a private limited company to gain limited liability and raise finance. Always weigh the trade-offs.
Match the factor 🔗
- control
- sources of finance
- liability
- distribution of profits
- who makes the decisions in the business
- how easily the business can raise money
- whether owners could lose personal possessions
- how the profit is shared out
Match the business to a structure 🧩
- one person starting a small market stall
- two friends pooling money and skills
- an established firm wanting limited liability and more finance
- a group that reinvests its surplus for a good cause
- a sole trader
- a partnership
- a private limited company
- a not-for-profit organisation
What is limited liability? ❓
What does limited liability mean?
- The owners can only lose the money they put in, not their personal possessions.
- The owners can lose their personal possessions if the business fails.
- The business does not have to pay any tax.
Who has limited liability? ✅
Select the TWO structures that have limited liability.
- A private limited company.
- A public limited company.
- A sole trader.
- An ordinary partnership.
A growth path 🪜
An interactive activity.
Summarise the choice 📝
When choosing a structure, an owner weighs up control, _____, liability and profit. A sole trader keeps full control but has _____ liability, so personal possessions are at risk. A private limited company gives its owners _____ liability and can raise more money. Two people who share skills and money form a _____. A new business often begins as a _____ trader before it grows.
Count the owners 🔢
An interactive activity.
Find the unlimited liability 🖍️
An interactive activity.
Recommend a structure 🧭
An interactive activity.
Justify a choice ✍️
An interactive activity.