Companies (OCR GCSE Business)

Sole traders and partners are fully responsible for all debts owed by the business

Owners are also legally responsible for any unlawful acts committed by those connected to the business

There is no legal distinction between owners with unlimited liability and the business

As a result, these business owners may have to use their own  personal assets to pay debts or legal fees

E.g. A sole proprietor may need to sell their home to pay  creditors if their business fails

Owners (shareholders) of private limited companies and public limited companies can only lose the original amount they invested in the business if it fails

Shareholders are not responsible for business debts

Shareholders are not held responsible for unlawful acts committed by the management or employees of the company

Companies are  incorporated and owners are considered a separate legal entity to the business 

This means that if a company fails, the owners would lose their investment (shares) but would not have to use their assets to meet additional debts or legal fees

E.g. In 2018 construction company Carillion entered liquidation and the shareholders lost their investments

Shareholders benefit from limited liability for debts incurred by the company

Access to greater finance from investors and lenders who consider limited companies to be less risky

Ownership can be easily transferred by selling shares

Business continuity, as the business does not die with its original owner

It is more expensive and time-consuming to set up as legal advice is often required

More complex operational rules than sole traders or partnerships

Annual financial reporting and auditing are required

Shareholders may have little control over the company as the founder usually imposes their own agenda

Significant amounts of capital can be raised during flotation

Risks are spread among a large group of shareholders

Company shares can be bought and sold easily on a public stock exchange

A board of directors, made up of individuals from outside of the company management and major shareholders, can bring in expertise/perspectives that can promote growth

PLCs have high visibility with customers, suppliers, and potential investors, which can help grow its customer base

As large businesses, PLCs  may be able to dominate the market and benefit from economies of scale

PLCs must comply with complex legal and financial regulations, such as:

• Completing regular financial reports

• Maintaining accurate accounting records

• Holding annual general meetings

Setting up a public limited company can be expensive 

• Fees for legal and accounting advice

• Costs of the flotation, such as producing a prospectus 

Short-term financial performance (e.g. paying staff less) is prioritised over long-term strategic planning (retaining talented staff) to maximise profits for shareholders

Hostile takeovers are a risk, as shares can be bought by rival businesses