Business structure

Business AS · Business and its environment. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.

Test this topic free All Business AS topics

The idea

Businesses are grouped by what they do. The primary sector extracts natural resources, the secondary sector makes goods, the tertiary sector provides services and the quaternary sector provides knowledge and information services. As a country gets richer, the share of the primary sector usually falls and services grow.

Businesses are also grouped by who owns them. The private sector is owned by individuals; the public sector is owned and controlled by the state.

The big idea in ownership is limited liability. Owners of a company can lose only the money they invested. Sole traders and ordinary partners have unlimited liability, so their personal possessions can be taken to pay business debts.

Rules to remember

Sole trader: one owner, full control, keeps all profit, unlimited liability.
Partnership: two or more owners share capital, skills, profit and (normally) unlimited liability.
Private limited company: shares sold privately, limited liability, cannot sell shares to the general public.
Public limited company: shares can be sold to the public and traded on a stock exchange; accounts are published; risk of takeover.
A company is a separate legal person from its owners, so it continues when shareholders change (continuity).
Franchise: the franchisee pays a fee and royalties to use the franchisor's brand and system.
Co-operative: owned and run by its members, usually one member one vote. Social enterprise: trades to meet a social or environmental aim and reinvests most of its surplus.

Common mistake

A public limited company is in the private sector, not the public sector. 'Public' here only means that the public can buy its shares.

Worked example

A dentist who is a sole trader wants to open a second clinic. She wants to protect her house from business debts, bring in her brother as an investor and keep control of decisions. Which form of ownership fits best?

Protecting her house needs limited liability, so sole trader and ordinary partnership are ruled out.
She wants one known investor, not thousands of strangers, so there is no need to sell shares to the public.
A public limited company would also bring high costs, published accounts and a risk of losing control.
A private limited company gives limited liability and lets her choose who holds shares.

Answer: A private limited company.

Ask about this

Type what you are stuck on. The helper finds the explanation, worked examples and the notes to read, free and instant.

Read the full notes

CIE AS Business (9609) Notes (PDF)

Keep going

← Enterprise Size of business →Take a Business AS test