Learn: Selecting the Right Legal Structure

Welcome!Today we're going to explore how businesses choose the right legal structure. This decision is important because it affects ownership, control, liability, and how finance is raised. Let's dive in!

What is a Legal Structure?A legal structure is the way a business is organised in terms of ownership and decision-making. Different structures suit different business goals, like maximising profit or limiting risk. Choosing the right structure is essential for a business to operate effectively.

Sole TradersA sole trader is a business owned and run by one person. They have full control and keep all profits, but they also have unlimited liability (they must cover all debts personally if the business fails).

PartnershipsA partnership is a business owned by two or more people. Partners share decision-making, profits, and responsibilities. Like sole traders, most partnerships also have unlimited liability.

Private Limited Companies (Ltd)A private limited company is owned by shareholders, but shares cannot be sold to the public. Owners benefit from limited liability, meaning they only lose what they invest if the business fails. However, there are legal requirements, such as filing accounts.

Public Limited Companies (Plc)A public limited company can sell its shares on the stock exchange, making it easier to raise large amounts of finance. Owners still have limited liability, but there is less control as anyone can buy shares.

Not-for-Profit OrganisationsNot-for-profit organisations, like charities, aim to provide a service or benefit to the community rather than make a profit. Any surplus money is reinvested into their activities.

How Businesses Choose a StructureBusinesses consider factors like control, liability, and how much finance they need. For example, someone starting alone might choose to be a sole trader, while a large business raising funds might become a public limited company.

Review Time!Great work! You've learned about different legal structures, including sole traders, partnerships, private and public limited companies, and not-for-profits. Let's test your understanding with a few questions.