Sole trader, partnership, private limited company, public limited company, or not-for-profit — the legal structure a business chooses shapes who controls it, how it raises money, and what happens if it all goes wrong.
Ownership structure decides who's in charge of operations, who pays for finance, who marketing answers to, and who's legally on the hook if things go wrong.
Choosing a legal structure
Why does ownership structure matter?
Before a business can trade, its owner (or owners) must choose a legal structure — the formal category the business fits into in the eyes of the law. This single choice ripples through almost everything else: who makes decisions, where the money to start and grow the business comes from, how profit gets shared out, and — critically — what an owner personally stands to lose if the business fails.
Getting this choice wrong can be costly and hard to reverse. A sole trader who takes on a large bank loan to expand, only for the business to fail, discovers the unlimited liability of that structure the hard way — their personal savings and possessions can be pursued to repay what the business owes. Conversely, an owner who converts to a limited company purely to gain liability protection, without understanding the extra reporting and administrative burden that comes with it, can find themselves buried in paperwork they didn't anticipate. This is exactly why AQA frames this topic around evaluation rather than memorisation: the "right" structure only exists in relation to a specific business's size, objectives and appetite for risk.
AQA won't ask you to describe the legal process of setting each structure up. What matters is being able to compare them against each other and recommend the most suitable one for a specific business in a specific situation — a new market trader starting out needs a very different structure to a national retailer planning to expand abroad.
The key dividing line
Limited vs unlimited liability
Every structure on this page splits into one of two groups, and the group a business belongs to is usually the single biggest factor in choosing it.
Unlimited liability
The owner(s) are personally responsible for all the debts the business runs up. If the business's own assets aren't enough to cover what it owes, creditors can pursue the owner's personal money, car, or even their home.
Applies to: sole traders, ordinary partnerships.
Limited liability
Owners (shareholders) can only lose the amount of money they originally put into the business by buying shares. Personal savings, property and possessions are protected, even if the company collapses owing large sums.
Applies to: private limited companies (ltd), public limited companies (plc).
Worked example: a business fails owing £20,000, but its remaining assets are only worth £5,000. If it's a sole trader, the owner is personally liable for the missing £15,000 — potentially from savings or by selling personal possessions. If it's a private limited company and a shareholder had invested £5,000 for their shares, that shareholder loses only that £5,000; the rest of the debt is written off against the company, not the individual. This single difference is why so many growing sole traders eventually convert into a limited company.
In the real world: JCB is one of the UK's best-known private limited companies — still owned and controlled by the Bamford family after decades of growth, with limited liability protecting them from the huge sums a global manufacturing business risks. Tesco and BP, by contrast, are public limited companies whose shares anyone can buy on the London Stock Exchange.
The five structures
Explore each type of ownership
Select a structure to see how it's controlled, financed, and what happens to liability and profit.
Sole trader
One person, full control, full risk.
Control
One owner makes every decision — though they may employ staff.
Finance
Personal savings, family/friends, retained profit, bank loans/overdrafts.
Liability
Unlimited — personal assets at risk.
Profit
Owner keeps 100% of profit, but absorbs 100% of any loss.
Advantages
Cheap and simple to set up
Full control over every decision
Keeps all the profit
Financial privacy — no requirement to publish accounts
Disadvantages
Unlimited liability
Harder to raise large amounts of finance
Entire workload and risk falls on one person
Business often can't continue if the owner is unable to work
Partnership
Two or more owners sharing capital, work and risk.
Control
Shared between partners, usually set out in a partnership agreement.
Finance
Pooled capital from each partner — more than a sole trader can usually raise alone.
Liability
Unlimited — each partner can be held responsible for the whole business's debts, including those run up by another partner.
Profit
Shared between partners according to the partnership agreement — not always equally.
Advantages
More capital available than a sole trader
Workload and expertise shared
Relatively simple and low-cost to set up
Risk shared across partners
Disadvantages
Unlimited liability
Potential for disagreement between partners
Profit has to be shared
One partner's poor decision can affect everyone
Private limited company (Ltd)
Owned by shareholders, shares stay within a chosen group.
Control
Owned by shareholders (often family/friends), run by directors; shares can't be sold without other shareholders' agreement.
Finance
Private share sales, retained profit, loans — more options than a sole trader or partnership.
Liability
Limited — shareholders only risk what they invested.
Profit
Paid out as dividends per share; remainder retained for growth.
Advantages
Limited liability protects personal assets
Easier to raise finance than a sole trader/partnership
Business continues even if an owner leaves
Control stays within a chosen group of shareholders
Disadvantages
Must publish annual accounts — less privacy
More legal and administrative requirements
Decision-making can slow down with more shareholders
Cannot sell shares to the general public
Public limited company (plc)
Shares sold on the stock exchange to anyone who wants to buy.
Control
Owned by potentially thousands of shareholders; run by a board of directors elected by them.
Finance
Can raise very large sums quickly by selling shares publicly on the stock exchange.
Liability
Limited — shareholders only risk what they invested.
Profit
Dividends paid per share across a potentially huge number of shareholders.
Advantages
Access to huge amounts of finance via public share sales
Limited liability
Higher public profile and credibility
Easier to achieve economies of scale
Disadvantages
Risk of takeover — anyone can buy shares
Original founders can lose control of their own business
Must publish detailed financial information publicly
Pressure from shareholders for short-term profit
Not-for-profit organisation
Exists to serve a purpose, not to make money for owners.
Control
Usually run by trustees or a committee rather than a sole owner.
Finance
Donations, grants, fundraising, and sometimes trading income.
Liability
Depends on the exact legal form chosen, but trustees are generally protected from personal financial risk.
Profit
Any surplus is reinvested into the organisation's purpose, not paid out to owners.
Advantages
Access to grants and donations unavailable to profit-driven businesses
Tax reliefs often available
Strong public goodwill and support
Volunteers and staff motivated by the cause, not just pay
Disadvantages
Harder to raise large-scale investment finance
Relies on donations/grants, which can be inconsistent
Decision-making can be slow with committees or trustees
Must demonstrate funds are used for the stated purpose
In the real world: many GP surgeries and dental practices operate as partnerships between the doctors or dentists who own them. Oxfam and the British Heart Foundation are well-known not-for-profit organisations, reinvesting all their income into their charitable purpose rather than paying it out to owners.
Apply it
Which structure fits?
Drag each business scenario into the ownership structure you think suits it best.
A window cleaner working alone
Two friends running a plumbing business together
A family bakery wanting some protection if it fails
A supermarket chain listed on the stock market
A charity providing free meals to the homeless
Sole trader
Partnership
Ltd
Plc
Not-for-profit
Evaluation
Choosing the right structure
There's no single "best" structure — only the most suitable one for a business's size, objectives and attitude to risk at that point in its life. AQA often frames questions around exactly this judgement, so it's worth thinking through the two ends of the spectrum.
A brand-new start-up
Often begins as a sole trader or partnership: cheap and quick to set up, full control retained, and no shareholders to answer to. The trade-off is unlimited liability — an acceptable risk for many small, low-debt businesses just getting going.
A large, established business
Is more likely to operate as a private or public limited company: it needs bigger sums of finance to expand, benefits from limited liability as risk and debt grow, and can afford the extra legal and reporting obligations that come with it.
A useful question to ask in any exam scenario: how much finance does this business need, how much control does the owner want to keep, and how much risk are they willing to personally carry? Answering all three usually points clearly to one structure over the others.
In the real world: Innocent Drinks started as a small partnership between three friends selling smoothies at a music festival, using a now-famous "yes/no" bin to ask customers whether they should quit their jobs to do it full time. It later converted into a private limited company as it grew, before eventually being majority-acquired by Coca-Cola.
Knowledge check
Test yourself
1. Which structure gives the owner unlimited liability but full control and 100% of the profit?
2. What is the main risk a plc's founders face that a private limited company's founders don't?
3. A not-for-profit organisation's surplus is:
Exam practice
Have a go
2 marks
State two features of a partnership.
Structure guide: two correct features identified — 1 mark each, no explanation required.
Case study — Bloom Hair: Amara has run Bloom Hair, a single successful hair salon, as a sole trader for six years. She now wants to expand to three more locations across the city, which she estimates will cost £150,000. Amara is nervous about risking her family home if the expansion doesn't work out, but she is also reluctant to lose control of decision-making by bringing in outside investors.
4 marks
State and explain two disadvantages to Amara of turning Bloom Hair into a public limited company.
Structure guide: state a disadvantage (1 mark), explain it in the context of Amara's situation (1 mark) — repeated twice over.
6 marks
Analyse why Amara might decide to turn Bloom Hair into a private limited company rather than continuing as a sole trader.
Structure guide: a single developed line of reasoning grounded in Amara's scenario (eg: expansion increases the debts the business could run up → as a sole trader, Amara's family home stays at risk from that growing debt → converting to Ltd caps her risk at what she invests → giving her the confidence to fund the expansion).
9 marks
Recommend whether Amara should remain a sole trader, form a partnership, or become a private limited company to fund her expansion. Justify your answer.
Structure guide: a "recommend" question needs a justified judgement — weigh at least two structures against Amara's specific details (the £150,000 needed, her wish to keep control, her concern about her home being at risk) before reaching a clear final recommendation.
Key terms
Glossary
Sole trader
A business owned and run by one person, who has unlimited liability.
Partnership
A business owned by two or more people who share capital, work, profit and unlimited liability.
Private limited company (Ltd)
A company owned by shareholders whose shares can't be sold to the public; owners have limited liability.
Public limited company (plc)
A company whose shares are sold on the stock exchange to the general public; owners have limited liability.
Not-for-profit organisation
An organisation set up to serve a social or charitable purpose, reinvesting any surplus rather than distributing it to owners.
Unlimited liability
Personal responsibility for all business debts, with no limit on what can be claimed from the owner's own money or possessions.
Limited liability
An owner's responsibility for business debts is capped at the amount they invested in shares.
Shareholder
A person or organisation that owns shares in a company, giving them a stake in its ownership and profits.
Dividend
A share of a company's profit paid out to shareholders, usually based on how many shares they hold.