different forms of business organisation: franchises, joint ventures, social enterprises

1.4.1 Different Types of Business Organisation

Cambridge IGCSE Business Studies (0450) expects candidates to know nine distinct forms of business organisation and to be able to describe, for each form, the key features, advantages, disadvantages, liability & risk, appropriate use, typical objectives & stakeholders, legal controls and a real‑world example. The table below summarises the information required; the detailed sections that follow expand each point.

Unincorporated businesses

These are the two forms that do not have a separate legal personality from their owners. They are listed separately in the syllabus because the nature of liability and risk differs from incorporated forms.

Limited companies

Both private and public limited companies are incorporated – they have a separate legal identity from their owners.

Private limited company (Ltd)

• Key features
  • Separate legal entity; ownership is divided into shares that are not offered to the public.
  • Managed by directors; shareholders own the company.
  • Shares may be transferred, but usually subject to restrictions in the articles of association.
• Advantages
  • Limited liability – shareholders are liable only for any unpaid amount on their shares.
  • Can raise finance from private investors, banks or venture capital.
  • Perpetual existence – the company continues despite changes in ownership or death of shareholders.
• Disadvantages
  • More administrative work (annual accounts, confirmation statements, statutory registers).
  • Profits may be subject to corporation tax and, when distributed as dividends, dividend tax.
  • Greater public disclosure than an unincorporated business.
• Liability & risk
  • Shareholders’ financial risk is limited to the amount unpaid on their shares; the company itself bears the business risk.
• When to use
  • When the business needs limited liability and wants to attract private investors but does not require access to the public capital markets.
• Typical objectives & stakeholders
  • Profit maximisation, growth, return on investment for shareholders.
  • Stakeholders: shareholders, directors, employees, customers, suppliers, lenders, regulators.
• Legal controls
  • Must be incorporated under the Companies Act (or equivalent legislation in other jurisdictions), file annual accounts, maintain statutory registers and comply with company‑law filing requirements.
• Examples
  • Dyson Ltd, Innocent Drinks Ltd, Tesco Stores Ltd (UK), Samsung Electronics Co. Ltd (South Korea).

Public limited company (PLC)

• Key features
  • Separate legal entity whose shares may be offered to the public on a stock exchange.
  • Minimum authorised share capital (e.g., £50 000 in the UK) with at least 25 % paid up.
  • Managed by a board of directors; owned by a wide base of shareholders.
• Advantages
  • Ability to raise large amounts of capital through public issue of shares.
  • Limited liability for shareholders.
  • Enhanced public profile and credibility.
• Disadvantages
  • Stringent regulatory and disclosure requirements (prospectus, continuous reporting, corporate governance codes).
  • Higher compliance costs.
  • Share price can be volatile; management may face pressure from shareholders.
• Liability & risk
  • Shareholders are liable only for any unpaid amount on their shares; the company bears the commercial risk.
• When to use
  • When a business requires substantial external capital and is prepared to meet the ongoing regulatory burden of being listed.
• Typical objectives & stakeholders
  • Maximise shareholder value, maintain dividend payouts, protect market reputation.
  • Stakeholders: shareholders, board of directors, employees, customers, suppliers, lenders, regulators, the wider public.
• Legal controls
  • Incorporated under the Companies Act (or comparable legislation), subject to stock‑exchange listing rules, prospectus requirements and ongoing disclosure obligations.
• Examples
  • BP plc, Tesco plc, Apple Inc., Toyota Motor Corp.

Franchise

• Key features
  • Franchisor grants the franchisee the right to use its trademark, operating system and ongoing support.
  • Contract specifies term, initial fee, royalty (usually a % of turnover), training, marketing assistance and quality standards.
  • Franchisee operates a separate legal entity but must follow the franchisor’s prescribed methods.
• Advantages
  • Access to an established brand and proven business model.
  • Ongoing training, marketing support and bulk‑buying economies of scale.
  • Lower failure risk compared with starting a completely new business.
• Disadvantages
  • Limited freedom – strict adherence to the franchisor’s system.
  • Initial franchise fee plus ongoing royalties reduce profitability.
  • Reputation of the whole chain can affect an individual outlet.
• Liability & risk
  • Franchisee is personally liable for the outlet’s debts; the franchisor’s liability is limited to the brand and contractual obligations.
• When to use
  • Ideal for entrepreneurs who want a recognised brand, training and support, and who are comfortable operating within a set system.
• Typical objectives & stakeholders
  • Profit maximisation and rapid market‑share growth for both franchisor and franchisee.
  • Stakeholders: franchisor, franchisee, customers, suppliers, lenders, regulators.
• Legal controls
  • Governed by contract law and competition law; in the UK franchisors who are members of the British Franchise Association must follow the Franchise Disclosure Code. Other jurisdictions have similar franchise‑registration or disclosure requirements.
• Examples
  • McDonald’s, Subway, 7‑Eleven, Costa Coffee.

Joint venture (JV)

• Key features
  • Two or more independent businesses pool resources for a specific project, product line or market entry.
  • May be a separate incorporated company (often a private Ltd) or a purely contractual arrangement.
  • Ownership, control, profits and risks are shared in agreed proportions.
• Advantages
  • Access to new markets, technology, distribution channels.
  • Sharing of capital costs and operational risk.
  • Combines complementary strengths (e.g., local market knowledge + advanced technology).
• Disadvantages
  • Potential conflict over strategic decisions and management style.
  • Profits must be divided, which may reduce individual returns.
  • Complex legal and financial arrangements; may be subject to antitrust/competition review.
• Liability & risk
  • If a separate company is formed, liability is limited to the JV’s assets.
  • If only a contractual JV, each partner remains liable for its own obligations; the JV itself has no separate legal personality.
• When to use
  • When entering a foreign market, developing a new product, or undertaking a large project where a partner brings essential expertise or local presence.
• Typical objectives & stakeholders
  • Achieve a specific commercial goal while sharing risk and resources.
  • Stakeholders: the partner firms, employees of the JV, customers, suppliers, regulators.
• Legal controls
  • Must comply with competition/antitrust legislation, company law (if incorporated), and be governed by a detailed joint‑venture agreement that sets out governance, profit‑sharing and exit provisions.
• Examples
  • Sony Ericsson (mobile phones), BMW‑Toyota fuel‑cell JV, British Airways & Iberia on selected routes.

Public sector organisations

• Key features
  • Owned and operated by central or local government.
  • Financed mainly through taxation, government grants or public borrowing.
  • Provide services that are considered public goods or that the market fails to supply profitably (e.g., health, education, utilities).
• Advantages
  • Access to public funding and guaranteed demand for essential services.
  • Can operate without a profit motive; social or policy objectives take priority.
  • Ability to implement wide‑scale policy goals (e.g., national health standards).
• Disadvantages
  • Bureaucratic decision‑making; limited flexibility.
  • Political interference and frequent policy changes.
  • Strict accountability, audit and procurement rules can increase administrative burden.
• Liability & risk
  • Legal liability rests with the government; individual managers are generally protected from personal liability, though they may be subject to civil service regulations.
• When to use
  • When a service is considered a public good or when the state wishes to retain control over strategic sectors.
• Typical objectives & stakeholders
  • Deliver public services efficiently, meet social policy goals, ensure equitable access.
  • Stakeholders: taxpayers, elected officials, service users, employees, trade unions, regulators.
• Legal controls
  • Governed by public‑sector procurement rules, public‑accountability legislation and sector‑specific statutes (e.g., NHS Act, Education Acts). Similar frameworks exist in other countries under their own public‑service laws.
• Examples
  • National Health Service (UK), British Rail (historical), BBC (public‑service broadcaster), Singapore Housing Development Board.

Social enterprise

• Key features
  • Operates commercially but its primary purpose is to achieve a social, environmental or community objective.
  • Profits are usually reinvested to further the mission or are distributed in a way that supports the social goal (e.g., paying a living wage, funding community projects).
  • Can be structured as a private limited company, a community interest company (CIC), a charity‑company hybrid, or a cooperative.
• Advantages
  • Appeals to consumers, employees and investors who value social impact.
  • May access specialised finance (social‑impact investors, grants, community funding).
  • Enhanced reputation and brand loyalty.
• Disadvantages
  • Balancing commercial viability with the social mission can be challenging.
  • May face higher scrutiny from regulators and the public.
  • Access to traditional finance can be limited if lenders focus solely on profit‑maximisation.
• Liability & risk
  • Depends on the legal structure: a Ltd or CIC gives limited liability to owners; a charity‑company hybrid may have additional fiduciary duties.
• When to use
  • When the entrepreneur’s core aim is to solve a social or environmental problem while remaining financially sustainable.
• Typical objectives & stakeholders
  • Achieve measurable social impact, maintain financial sustainability.
  • Stakeholders: founders, employees, beneficiaries/clients, socially‑responsible investors, local community, regulators.
• Legal controls
  • Must comply with company law (or charity law if registered as a charity) and any sector‑specific regulations (e.g., fair‑trade standards). In the UK, CICs are regulated by the Companies Act and must file a community interest report each year.
• Examples
  • Grameen Bank (micro‑finance), The Body Shop (ethical cosmetics), TOMS Shoes (one‑for‑one model), The Big Issue (homeless‑person‑run newspaper).

Quick comparison: Franchise, Joint venture & Social enterprise

Summary checklist for the nine forms

These notes now follow the exact terminology and depth required by the Cambridge IGCSE Business Studies syllabus, include an explicit “Unincorporated businesses” section, provide an international‑legal context note for each form, and distinguish clearly between liability and financial risk.