A2 Business Ownership
Owners are individuals or groups that have legal possession of a business. This means that they have the responsibility of the business assets and liabilities and are rewarded by the profits generated from its operations. Becoming a business owner requires some form of financial investment and different levels of risk depending on the ownership structure.
Ownership structures include;
Sole trader
Partnership
Private limited company
Public limited company
Unlimited liability exists where there is no legal separation between the business owners and the business itself. This means that, if the business falls into financial difficulty, the owners not only lose their initial investment but are personally responsible for settling any further debt. This may mean taking out a personal loan, remortgaging their house or using their savings if they have any. Sole traders and ordinary partnerships have unlimited liability.
Limited liability means that there is a legal separation between the business owners and the business itself. This means that, if the business falls into financial difficulty that cannot be resolved with the business assets, the owners only lose what they invested.Private and public limited companies have limited liability.
A sole trader is a business that is owned and controlled by one person. They make all decisions and keep all of the profits but are responsible for all investment and have unlimited liability.
A private limited company is an organisation that has a legal separation from its owners. The owners therefore have limited liability. Private limited companies can raise finance for the sale of shares. However there are restrictions on how shares can be sold, e.g. they cannot be sold on the stock market and if a shareholder wants to sell a share, they must offer them for sale to other shareholders in the first instance.
A partnership is a business that is owned by two or more people. The partners sign a partnership agreement to outline expectations and how profit will be shared. Ordinary partnerships have unlimited liability but limited liability partnerships can be formed.
A public limited company is an organisation that is owned by its shareholders who purchase shares on the stock market. Profit is distributed based on the percentage of shares owned. They are required to publish their financial accounts so potential shareholders can assess their true financial position. There are no restrictions on who can purchase shares.
Reasons a Business Might Change its Ownership
To finance growth,
To address competitive pressures in the market;
Business failures leading to a take-over.
To bring in new skills and ideas
To share the workload
To gain limited liability