Choosing an Appropriate Legal Structure (AQA GCSE Business)

Siobhan wants to set up a pet sitting business

Siobhan could

1. Set up as a sole trader

2. Set up the business with a partner

Siobhan does not have much money to invest in the business

Siobhan wants to work on her own

Operating as a sole trader would allow Siobhan the independence she desires

The pet sitting business is unlikely to require much capital to set up, so Siobhan does not need a partner to invest capital

Kevin is a qualified dentist, looking to set up a surgery in his local town

Kevin could

1. Set up as a sole trader

2. Set up the business with a partner

Kevin has some savings but not enough to purchase all the equipment required

Kevin has a good friend in a similar professional position

Kevin should set up a partnership business with his friend

Both partners could contribute capital

A partnership is seen as less risky than sole traders by lenders so a loan application to purchase equipment could be successful

Pauline and Olive want to set up a restaurant

They could

1. Set up the business as a partnership

2. Establish a private limited company

The restaurant building requires modernisation and refitting with a full kitchen and dining space

They have enough capital to fund some of this work

Neither Pauline nor Olive are prepared to take personal financial risks

Pauline and Olive should form a private limited company as equal shareholders

They may be able to borrow the required finance to fund the modernisation and refurbishment, as Ltds are seen as less risky than partnerships

They will enjoy the protection of limited liability should the business fail

AMF Ltd is a large, fast-growing commercial cleaning company

It is seeking to raise substantial funds to finance further growth

AMF Ltd can either

1. Remain as a private limited company and take out a loan

2. Become a public limited company

AMF Ltd has been a family-owned business since it opened in 1982

AMF Ltd has a good credit rating and has used loans to finance growth in the past

Remaining as a private limited company would ensure AMF remains as a family business

The business may not need to raise large amounts of capital from the sale of shares as it has successfully raised the finance it needed to grow in the past by borrowing

The decision depends on how much finance is required, as only a flotation could raise a very substantial level of finance

Having achieved success in the UK, Varitool Ltd is looking to open retail outlets across Europe

It requires significant amounts of capital to fund research and the purchase of suitable premises

Varitool Ltd can either

1. Remain as a private limited company and take out a loan

2. Become a public limited company

Varitool Ltd is currently owned by its founder and a range of private investors

Its owners want to maximise their financial rewards

Becoming a public limited company could raise a significant amount of capital through stock market flotation

This could fund the ambitious growth plans

Existing owners would be able to take a large financial reward from flotation

The decision depends on the attitude of current owners toward the potential for loss of control over the business, especially for its original founder