1.2.1 - Forms of business ownership
Learn who owns the main forms of business and how to distinguish an individual owner, partners, shareholders and the state. These differences help explain how businesses are organised, whatever their size.
A business with one owner
A sole trader owns a business individually, even when the business employs other people.
Sole trader
A business owned by one person.
The owner normally makes the main decisions and receives the profit after the business pays its costs. Profit is the surplus of revenue over costs; sales receipts do not all belong to the owner because suppliers, workers and other costs must be paid. The sole trader also bears responsibility for the business's debts. The next lesson explains this personal risk through unlimited liability.
Illustrative example: Amira owns a bicycle-repair business in Morocco and employs three mechanics. She chooses its opening hours and services. The mechanics receive wages, but they have not become owners simply by working there. Amira is still a sole trader. One owner can decide quickly whether to open on a busy market day, although that owner must also carry the workload of making the decision.
Ownership is different from size. One owner can employ many workers; a business with no employees could instead be a company. Count the owners and identify the legal form rather than guessing from the number of shops or workers.
Partners share ownership
A partnership brings two or more people together to own and run a business.
Partnership
A business owned by two or more partners who share responsibility for it.
Partners can contribute money, skills and time. They share profits according to their agreement; equal ownership or an equal profit split is not automatic. A partnership agreement can specify contributions, profit shares, decision-making responsibilities and what happens if a partner leaves. It reduces uncertainty but cannot remove every disagreement.
Illustrative example: two architects in Jordan create a partnership. One specialises in building design and the other in managing clients and project deadlines. Combining those skills lets the business serve clients while designs are being completed. They must agree how to use profit, however: one may want extra software while the other wants a larger personal income.
For an ordinary partnership, partners have unlimited liability. This course does not require you to assume that every country's special limited-partnership arrangements follow that rule. The key distinction here is shared ownership, rather than several employees working for a single owner.
Private limited companies
A private limited company is owned by shareholders, with restrictions on offering its shares to the public.
Private limited company
An incorporated business owned by shareholders whose shares are not offered to the general public.
Incorporation creates a separate legal identity for the company. A share represents a portion of its ownership, and a shareholder owns one or more shares. Shareholders have limited liability: they can lose their investment, but are not normally required to use personal possessions to settle the company's debts. Protection from company debts does not guarantee a return on their investment.
Shares may be held by founders, relatives or private investors. They can raise money by bringing in an agreed new shareholder, but cannot simply sell shares to the general public as a public limited company can. Restrictions on share transfers help existing owners influence who joins the business. The precise legal rules and name suffixes vary between countries.
Illustrative example: a family furniture manufacturer in Vietnam incorporates as a private limited company. Family members own its shares, while employed managers supervise production. The company can grow beyond a single workshop without changing into a public limited company. Being private does not mean that its financial records are automatically secret; companies have reporting obligations.
Shareholders own the company. Directors and managers run it; those people may also own shares, but employment or management alone does not give ownership.
Public limited companies
A public limited company can offer shares to the general public while remaining a business owned by shareholders.
Public limited company
An incorporated business whose shares can be offered to the general public and whose shareholders have limited liability.
Offering shares to many investors gives a company access to a wider pool of ownership finance. A stock exchange provides a market where listed shares can be bought and sold. Public limited status does not itself mean every company is listed on an exchange. Investors may receive a dividend, a distribution from profit, or keep their shares hoping their value will rise; neither gain is guaranteed.
Illustrative example: a large food manufacturer wants to finance factories in several countries. Offering shares widely could raise more ownership finance than relying only on a few family investors. Those new investors receive ownership rights, so the original owners may have less influence over decisions. Directors manage the company on the shareholders' behalf rather than asking every shareholder to supervise each factory.
A public limited company need not be government-owned. In this phrase, public refers to the opportunity for the public to buy shares. It also need not be multinational: a company can offer shares publicly while operating only in one country.
Public corporations and the state
A public corporation is owned by the state, rather than by private individuals buying its shares.
Public corporation
A business organisation owned by the government or state.
Government normally appoints a governing board or sets the framework within which managers operate. The organisation may sell a service and earn revenue while also meeting public objectives, such as reliable access to transport or water. Public ownership does not mean services are always free, and a public corporation is not simply another name for any government department.
Illustrative example: a state-owned rail corporation operates passenger services. A government may require it to maintain a remote route even when ticket revenue does not cover that route's costs. Its ownership allows public priorities to influence the service. Whether this is appropriate, and the costs involved, are considered in 1.2.2.
| Form | Who owns it? | Distinguishing feature |
|---|---|---|
| Sole trader | One person | Employees need not be owners |
| Partnership | Two or more partners | Shared ownership and responsibilities |
| Private limited company | Shareholders | Shares are not offered to the general public |
| Public limited company | Shareholders | Shares may be offered to the general public |
| Public corporation | The state | Government ownership |
The word public therefore has two different uses. A public limited company has public share access; a public corporation has state ownership. Legal form, size and the activity performed are separate questions.