Business in the Real World: Purpose and Ownership Structures
Every business exists to provide goods or services that customers want, and most aim to make a profit while doing it. For AQA GCSE Business 8132 you need to know why businesses start, what entrepreneurs do, and the strengths and weaknesses of each ownership structure. This page covers sole traders, partnerships, private limited companies and public limited companies.
Why businesses exist and the role of the entrepreneur
Businesses exist to supply goods (physical products like trainers) and services (like haircuts or streaming), to meet customer needs and wants, and to add value to raw materials. Most aim to make a profit, though some, such as charities and social enterprises, have other objectives.
An entrepreneur is someone who spots a gap in the market, organises the resources needed to fill it, and takes on the financial risk. The possible rewards are profit, independence and the satisfaction of building something. The risks include losing personal savings, unpredictable income and long working hours. Around 800,000 new businesses are registered in the UK each year, but a large share close within five years, which shows why planning and realistic objectives matter.
Sole traders and partnerships
A sole trader is a business owned by one person, such as a plumber or a market stall holder. It is quick and cheap to set up, the owner keeps all the profit and makes decisions fast. The big drawback is unlimited liability: the owner is personally responsible for all business debts, so they could lose their house or savings if the business fails. Sole traders also find it harder to raise finance and may struggle when ill or on holiday.
A partnership is owned by two or more people, common for dentists, solicitors and accountants. Partners share the workload, bring different skills and can invest more capital between them. However, partners usually still have unlimited liability, profits must be shared, and disagreements between partners can slow decisions or split the business.
Limited companies: Ltd and plc
A private limited company (Ltd) is owned by shareholders, often family or friends, and shares cannot be sold to the public. A public limited company (plc) can sell shares on the stock market to anyone. Both give owners limited liability: shareholders can only lose the money they invested, not their personal possessions.
Greggs plc is a good example. Its shares trade on the London Stock Exchange, it operates more than 2,600 shops across the UK, and its revenue passed £2 billion in 2024. Becoming a plc helped Greggs raise the money to grow, but it also means publishing accounts, paying dividends and risking a takeover if outsiders buy enough shares. This split between the shareholders who own the business and the directors who run it is called the divorce of ownership and control.
Key terms
Practice questions
State two features of a sole trader. [2 marks]
Model answer guidance: A sole trader is owned by one person. The owner has unlimited liability for business debts. The owner also keeps all of the profit the business makes.
Explain one drawback of unlimited liability for a partner in a partnership. [3 marks]
Model answer guidance: Unlimited liability means a partner is personally responsible for the debts of the business. If the partnership cannot pay what it owes, the partner may have to sell personal assets such as their car or home. This makes joining a partnership financially risky, especially if other partners make poor decisions.
Analyse one benefit to a growing business of becoming a private limited company. [6 marks]
Model answer guidance: Becoming an Ltd gives the owners limited liability, so they can only lose the money they invested. This means they are more willing to take sensible risks, such as borrowing to open a second branch, because their homes are protected. It also makes it easier to raise capital by selling shares to family or trusted investors, which supports faster growth than a sole trader relying only on loans.
Analyse how becoming a public limited company might affect the original owners of a business. [9 marks]
Model answer guidance: Selling shares on the stock market raises large amounts of finance, so the original owners can fund expansion without taking on debt. However, they give up some control because outside shareholders can vote at meetings and expect dividends, which may push the business towards short-term profit rather than the founders' long-term plans. There is also the risk of a takeover if another company buys a majority of the shares, meaning the founders could lose control of the business they built.
A successful sole trader is considering becoming a private limited company. Evaluate whether this is the right decision. [12 marks]
Model answer guidance: Becoming an Ltd protects the owner through limited liability and makes the business look more established to banks and suppliers, which helps it raise finance and win contracts. On the other hand, the owner must register with Companies House, publish accounts and share profits if new shareholders join, and the paperwork adds cost and time. The right choice depends on the owner's plans: if they want to grow, borrow money or take on risk, incorporation is sensible, but a small, stable business with few debts may gain little from the change. Overall, for a successful business planning growth, the protection of limited liability usually outweighs the extra administration.
Examiner tips
- For 12-mark questions, always end with a clear judgement that answers the question directly and depends on context, such as the size of the business or its plans.
- Do not confuse limited liability with limited companies never failing; shareholders can still lose their whole investment.
- Learn one real example, such as Greggs plc, and use it to support analysis, but make sure your point still answers the question set.
In The Business School simulation your students make these exact decisions in a live market against rival firms — every choice mapped to the specification. Free teacher demo, no installs, students join with a PIN.