Cambridge Syllabus Notes

Business Structure – Business Ownership (Cambridge International AS & A Level 9609)

This note covers every ownership form required by the syllabus, links each form to the four economic sectors and the public‑private divide, and provides a systematic framework for judging which form is most appropriate for a given commercial situation.

1. Economic Sectors & the Public‑Private Distinction

Primary sector – extraction of raw materials (farming, fishing, mining).
Typical ownership: sole trader or partnership because capital needs are modest and operations are often family‑run.
Secondary sector – manufacturing, construction and processing.
Typical ownership: private limited company (Ltd) for medium‑size firms that need external finance and limited liability.
Tertiary sector – services such as retail, hospitality, finance and tourism.
Typical ownership: franchises (e.g., McDonald’s), co‑operatives (e.g., The Co‑operative Group) and private Ltds (e.g., Airbnb).
Quaternary sector – knowledge‑based activities (IT, research, education, biotech).
Typical ownership: joint ventures (e.g., BMW + Toyota fuel‑cell JV), social enterprises (e.g., The Big Issue), and private Ltds that attract venture capital.

Public vs. private sector: The public sector consists of state‑owned bodies (e.g., NHS, local authorities). While these are not listed as private‑sector ownership forms, the choice of private‑sector structure is often influenced by the need to compete with public providers, win public contracts, or fulfil social objectives.

2. Types of Business Ownership

Form	Legal definition & typical structure	Liability	Tax treatment & continuity	Key suitability (finance, governance & other criteria)	Illustrative example
Sole Trader	One individual owns and runs the business; no separate legal entity.	Unlimited – owner is personally liable for all debts.	Taxed on personal income (income tax & NICs). Business ceases on death or if the owner sells.	• Full personal control. • Very low start‑up capital required. • Simple regulatory burden (self‑assessment tax return). • No requirement for a board or formal governance.	Local bakery; freelance graphic designer; a small‑scale organic farm.
General Partnership	Two or more persons share ownership and management; partnership is not a separate legal entity.	All partners have unlimited liability (each can be sued for the whole debt).	Each partner is taxed on their share of profit (income tax). Partnership dissolves on death or withdrawal of a partner unless otherwise agreed.	• Shared expertise and resources. • Moderate capital needs. • Joint decision‑making (usually via partnership agreement). • No statutory filing except a partnership tax return.	Law firm; small engineering practice; a boutique marketing agency.
Limited Partnership (LP)	At least one general partner (unlimited liability) and one or more limited partners (liability limited to their investment). Often used for investment projects.	General partner – unlimited; limited partners – limited to the amount invested.	Limited partners are taxed on their share of profit (income tax). The partnership itself does not pay corporation tax. Continuity depends on the general partner’s status; the LP can survive the exit of a limited partner.	• Need for passive investors while retaining control. • Ability to raise substantial capital without giving up management. • Regulatory filing of a registration statement (e.g., with Companies House in the UK). • Governance: general partner runs the business; limited partners have no management rights.	Property‑development vehicle; family investment fund; a venture‑capital fund set‑up as an LP.
Private Limited Company (Ltd)	Separate legal entity; shares are not offered to the public. Must have at least one director and one shareholder.	Limited – shareholders liable only up to the amount unpaid on their shares.	Subject to corporation tax on profits; dividends taxed in the hands of shareholders. Perpetual existence – the company continues despite changes in shareholding or the death of directors.	• Access to bank loans, venture capital and angel investment. • Formal governance (board of directors, shareholders’ meetings). • Regulatory & reporting: annual accounts filed at Companies House, statutory audit if thresholds are met, corporation‑tax return. • Suitable for growth ambitions short of a public listing.	Airbnb (private Ltd in many jurisdictions); regional manufacturing firm; tech start‑up seeking VC funding.
Public Limited Company (PLC)	Separate legal entity; shares may be offered to the public and listed on a stock exchange. Minimum share capital required (e.g., £50,000 in the UK).	Limited for all shareholders.	Corporation tax on profits; shareholders taxed on dividends. Perpetual existence – the company survives changes in ownership.	• Ability to raise large sums of equity capital from the public and institutional investors. • Governance: board of directors, audit committee, shareholders’ meetings, compliance with stock‑exchange rules. • High regulatory burden: detailed prospectus, ongoing disclosure, FCA (or equivalent) supervision, mandatory audit. • Suitable for large‑scale enterprises with national or multinational operations.	Tesco PLC; multinational oil company; national retailer such as Marks & Spencer.
Co‑operative	Member‑owned organisation; each member has one vote regardless of shareholding. Can be registered as a Ltd or as a separate co‑op legal form.	Limited – members liable only to the amount of their share contribution.	Taxed as a corporation (corporation tax) but may receive special reliefs; profits are distributed as patronage refunds. Perpetual existence – the co‑op continues as long as members support it.	• Democratic decision‑making (one‑member‑one‑vote). • Surplus distributed to members or reinvested. • Access to member capital, grants and community‑development finance. • Governance: elected board, member meetings, clear voting rules.	The Co‑operative Group (UK food co‑op); agricultural marketing co‑op; housing co‑operative.
Franchise	Legal relationship between a franchisor (owner of the brand, IP and operating system) and a franchisee (who runs an individual unit, usually as a Ltd or sole trader).	Liability follows the legal form of the franchisee – typically limited if the franchisee is an Ltd.	Franchisee pays corporation tax on profits (if Ltd) or income tax (if sole trader). Continuity depends on the franchisee’s legal structure; the franchisor’s brand can survive multiple franchisees.	• Rapid market expansion using a proven concept. • Franchisee raises own capital; franchisor retains brand control. • Governance: franchisor sets standards, monitors compliance; franchisee operates day‑to‑day. • Regulatory: franchise agreements must comply with consumer‑protection law; franchisees file standard company accounts.	McDonald’s (global franchise network); Anytime Fitness; a local coffee‑shop franchise of Costa Coffee.
Joint Venture (JV)	Two or more independent businesses pool resources for a specific project or market. Usually set up as a separate private Ltd, but can also be a contractual arrangement.	Liability depends on the vehicle used – most JVs are structured as a limited liability company, protecting each parent’s exposure.	JV company pays corporation tax; profits are distributed to parent companies and taxed according to their own regimes. The JV has perpetual existence only if stipulated in the JV agreement.	• Combine complementary skills, technology or market access. • Shared risk and profit for a defined purpose. • Governance: board composed of representatives from each partner; clear decision‑making and exit clauses required. • Regulatory: must file accounts; may need antitrust clearance for large projects.	BMW + Toyota fuel‑cell joint venture; Sony + Ericsson mobile‑technology JV; a UK‑US biotech collaboration.
Social Enterprise (e.g., Community Interest Company – CIC)	Business with a primary social or environmental mission; can be a Ltd, CIC or co‑operative. Often subject to an asset‑lock.	Usually limited – shareholders or members liable only to the amount unpaid on shares.	Corporation tax on profits; a portion of surplus must be reinvested for the social purpose (CICs have a cap on dividend distribution). Perpetual existence – the entity continues as long as the mission is pursued.	• Strong social/ethical objective attracts impact‑focused investors. • May qualify for grants, tax reliefs and social‑enterprise certifications. • Governance: board with social‑impact reporting; often includes community representatives. • Regulatory: must file a community‑interest statement and annual reports showing asset‑lock compliance.	The Big Issue (street‑newspaper CIC); a renewable‑energy start‑up structured as a Ltd with a social‑impact charter; Fairtrade coffee importer.

3. Criteria for Evaluating the Most Appropriate Ownership Form

Control & decision‑making – Who decides the strategic direction? (sole control, shared among a few owners, democratic one‑member‑one‑vote, or retained by a parent in a franchise/JV.)
Liability – Unlimited vs. limited; extent of personal risk.
Capital requirements – Size of finance needed and the most suitable source (bank loan, venture capital, public equity, member contributions, franchisee investment).
Tax treatment – Income tax (sole trader/partnership) vs. corporation tax (Ltd, PLC, co‑op, CIC) and the tax implications of dividends or profit‑sharing.
Regulatory & reporting burden – Filing accounts, audits, FCA/stock‑exchange rules, sector‑specific licences.
Continuity – Ability of the business to survive the death, retirement or transfer of an owner.
Growth ambitions – Need for rapid expansion, public listing, franchising, or international partnership.
Sector & market context – Capital intensity, need for brand replication, democratic ownership, or social mission specific to primary, secondary, tertiary or quaternary sectors.

4. Advantages & Disadvantages of Changing Ownership Form

From … to …	Typical reason for change	Key advantages gained	Potential disadvantages / costs
Sole trader → Ltd	Need for external finance; limit personal risk.	Limited liability; ability to issue shares; enhanced credibility with banks and investors.	Higher regulatory burden; incorporation costs; possible dilution of control.
General partnership → Ltd	Desire to protect partners’ personal assets and attract investors.	Limited liability; easier transfer of ownership; perpetual existence.	More complex governance; statutory filing requirements; loss of informal decision‑making.
Ltd → PLC	Requirement for large capital and public listing.	Access to public equity markets; enhanced brand profile; ability to raise substantial funds.	Very high compliance costs; loss of privacy; pressure from shareholders and market analysts.
Ltd → Co‑operative	Shift towards democratic member control and profit‑sharing.	Member loyalty; eligibility for co‑op grants; limited liability.	Decision‑making can be slower; profit distribution limited by one‑member‑one‑vote principle.
Partnership → Joint venture	Need to combine complementary resources for a specific project.	Shared risk; access to partner’s markets/technology; ability to pool large capital.	Potential conflict over objectives; need for clear exit mechanisms; possible antitrust scrutiny.
Any form → Social enterprise (CIC/Ltd)	Desire to embed a social mission and attract impact investors.	Eligibility for social‑impact grants; enhanced reputation; limited liability.	Restrictions on profit distribution; additional reporting on social outcomes.
Ltd → Franchise network	Rapid geographic expansion using a proven brand.	Scalable growth with low capital outlay for the franchisor; royalty income.	Need to monitor franchisee compliance; potential brand‑reputation risk.

5. Decision‑Making Flow (Textual Flowchart)

5.1 What is the scale of capital required?
- Modest (≤ £50 k) → Sole trader, General partnership or Limited partnership.
- Medium (£50 k – £5 m) → Private Ltd (or Co‑operative if democratic control is essential).
- Large (> £5 m) or need for public equity → PLC or a Joint venture with a partner that can contribute capital.
5.2 How much personal liability is acceptable?
- Willing to accept unlimited liability → Sole trader or General partnership.
- Prefer limited liability → Ltd, PLC, Limited partnership (limited partners), Co‑operative, JV, Social enterprise.
5.3 What level of control is required?
- Full personal control → Sole trader.
- Shared control among a few owners → Partnership or Ltd (shareholder‑director model).
- Democratic, one‑member‑one‑vote → Co‑operative.
- Strategic control retained by a parent while others operate units → Franchise.
- Control split with a partner for a specific project → Joint venture.
5.4 What are the growth ambitions?
- Rapid geographic expansion using a proven concept → Franchise.
- Entry into a new market with a partner’s expertise → Joint venture.
- Long‑term public capital raising and share‑market presence → PLC.
- Steady organic growth without public scrutiny → Ltd or Co‑operative.
5.5 What regulatory capacity does the business have?
- Limited administrative resources → Sole trader or Partnership.
- Ability to meet statutory filing, audit and (if required) FCA requirements → Ltd or PLC (or a JV set up as an Ltd).
5.6 Is there a social or community purpose?
- Yes → Consider a Social enterprise (CIC or Ltd with a social charter) or a Co‑operative if democratic ownership is also desired.

6. Summary

The “most appropriate” ownership form results from balancing the eight evaluation criteria:

Control vs. shared decision‑making
Unlimited vs. limited liability
Capital needs and the most suitable source of finance
Tax efficiency (income tax vs. corporation tax, dividend treatment)
Regulatory and reporting capacity
Continuity and succession planning
Growth ambitions (franchising, public listing, joint venture, international expansion)
Sector‑specific considerations and any social mission

By applying the criteria systematically and being aware of the advantages and disadvantages of moving between forms, students can confidently evaluate case‑study scenarios and recommend the ownership structure that best supports a business’s strategic objectives.

Suggested diagram: A flowchart linking each evaluation criterion (control, liability, capital, tax, regulation, continuity, sector, growth) to the ownership forms highlighted in the comparison table.

the appropriateness of different types of business ownership