Business ownership — AQA GCSE Business
Test yourself on Business ownership with AQA GCSE practice questions.
7 days Premium · Then free forever · No card, no charge
Business ownership explained
A sole trader is a business owned and controlled by one person, although it may employ staff.
Read the full explanation
The owner provides capital, makes decisions, keeps profits after tax, and has unlimited liability, meaning personal assets such as a house or savings can be used to settle business debts. Sole traders are easy to set up, often with modest capital, and retain all profit, which motivates effort. However, they carry full risk, may struggle to raise finance, and can lack specialist skills. For example, a plumber registers with HMRC, opens a business bank account, and trades under their own name; if the business cannot pay a supplier, the plumber is personally liable. Success depends on the owner's skills, market demand, and financial planning.
Partnerships
A partnership is a business owned by two or more people who share ownership, capital, profits, and decision-making under a partnership agreement. Partners usually have unlimited liability, so personal assets can be used to pay business debts, although some partners may have limited liability in certain forms. Partnerships can raise more finance and bring wider skills than a sole trader, but profits are shared and disagreements can occur. For example, two accountants form a partnership, each contributing £20,000; they share profits equally and are jointly liable for debts. A written agreement should cover profit shares, roles, and dispute resolution to reduce conflict.
Private limited companies (ltd)
A private limited company is a business owned by shareholders and registered at Companies House with 'ltd' after its name. It has a separate legal identity from its owners, so the company itself can own assets, sign contracts and be sued. Shares are sold privately, often to family, friends or business angels, and cannot be advertised to the general public. Shareholders have limited liability: they can lose only the money they invested, not their personal possessions. This makes it easier to raise finance than for an unincorporated business, but accounts must be filed and are publicly available. Control can be diluted as more shareholders join, and setting up involves legal formalities. For example, a family restaurant that wants to expand could become 'Riverside Bistro Ltd', sell shares to relatives and use the capital to open a second branch while protecting the owners' homes.
Public limited companies (plc)
A public limited company is an incorporated business with 'plc' after its name. It has a separate legal identity and its shareholders have limited liability. Unlike a private limited company, a plc can offer shares to the general public, usually through a stock exchange, so it can raise large amounts of capital. Shares can be bought and sold freely, which makes the business more attractive to investors, but it also means ownership and control can change quickly. A plc must publish its accounts and other information, so competitors and the public can see its financial position. Setting up is expensive and subject to more regulation than a private limited company. For example, a growing chain could become 'Green Grocers plc', sell shares on the London Stock Exchange and use the funds to open stores nationwide, while original owners may lose some control.
Not-for-profit organisations
Not-for-profit organisations trade to fund a mission rather than to distribute profit to owners. Surplus is reinvested into services, facilities or community aims. Common forms include charities, social enterprises, co-operatives and community interest companies. They still need income to cover costs, so they may sell goods, bid for grants or run fundraising events. For example, a community sports club charges membership fees; any surplus buys equipment or maintains pitches instead of paying dividends. This structure can attract volunteers, donations and favourable tax treatment, but it may struggle to raise large capital and can face strict rules on how surplus is used. Understanding this helps explain why some businesses prioritise social impact over shareholder returns.
understand the different legal structures that businesses adopt
Legal structure determines who owns a business, how it is controlled, how profits are shared and the extent of owners' liability. Unincorporated structures include sole traders and partnerships; owners have unlimited liability, so personal assets are at risk. Incorporated structures include private and public limited companies; they have separate legal identity and limited liability, but must register and disclose more information. Other forms include not-for-profit organisations. Choosing a structure affects access to finance, tax, risk and decision-making. For example, a sole trader keeps all profit but faces unlimited liability, while a private limited company can sell shares to raise capital but must file accounts. Understanding these differences allows students to recommend a suitable structure for a given business context.
analyse the benefits and drawbacks of each legal structure (including issues such as management and control, sources of finance available, liability and distribution of profits)
Every legal structure carries trade-offs. A sole trader keeps all control and profit but faces unlimited liability and limited finance. A partnership adds capital and shared skills yet profits and decisions are shared, and ordinary partners still risk personal assets. A private limited company (Ltd) gains limited liability and can sell shares privately, but must register, publish accounts and accept some loss of control. A public limited company (PLC) can raise large sums through the stock market, though it faces regulation, disclosure and possible loss of control. Assess each structure against management and control, finance, liability and profit distribution, then judge which best fits the business's needs.
understand the concept of limited liability and which legal structures benefit from this
Limited liability means the owners of a business can lose only the money they invested, not their personal assets, if the business fails. It exists because a company is a separate legal entity from its owners. Shareholders in a private limited company (Ltd) and a public limited company (PLC) benefit, as do members of a limited liability partnership. Sole traders and ordinary partners have unlimited liability, so their personal possessions are at risk. Limited liability encourages investment because shareholders know their exposure is capped, but it requires registration and public disclosure of accounts. A sole trader wanting limited liability could incorporate as a Ltd.
evaluate which legal structure would be most appropriate for a variety of business examples, including new start-up businesses and large established businesses.
You must judge the best legal structure for different businesses, including new start-ups and large established firms. Consider sole trader, partnership, private limited company (Ltd) and public limited company (plc). Weigh control, liability, finance, continuity and cost. For a new start-up, a sole trader may suit low-risk, low-cost ventures, but a partnership can share skills and capital. A large established business may need a Ltd or plc to raise finance and limit liability, though plc brings disclosure and takeover risk. Reach a supported judgement for each example.
Your focus
- Define a sole trader and identify who owns and controls the business.
- Explain the advantages and disadvantages of operating as a sole trader, including unlimited liability.
- Apply the concept of sole trader ownership to a business scenario and assess its suitability.
Show all 27 objectives
- Define a partnership and identify how ownership, control, and profits are shared.
- Explain the advantages and disadvantages of partnerships, including unlimited liability and the role of a partnership agreement.
- Apply partnership concepts to a business scenario and assess whether a partnership is suitable.
- Define a private limited company and state the meaning of 'ltd'.
- Explain how limited liability and private share sales affect the owners and the business.
- Apply the advantages and disadvantages of a private limited company to a given business scenario.
- Define a public limited company and state the meaning of 'plc'.
- Explain how public share sales affect finance, ownership and control.
- Apply the advantages and disadvantages of a public limited company to a given business scenario.
- Define a not-for-profit organisation and state its main aim.
- Describe how a not-for-profit organisation uses any surplus it generates.
- Evaluate one advantage and one limitation of operating as a not-for-profit organisation.
- Describe the main legal structures that businesses can adopt.
- Explain the advantages and disadvantages of at least two different legal structures.
- Recommend a suitable legal structure for a given business scenario and justify the choice.
- Compare at least three legal structures across management, finance, liability and profit distribution.
- Apply the benefits and drawbacks of each structure to a given business scenario.
- Justify a recommended legal structure using evidence from the case study.
- State what limited liability means for business owners.
- Identify the legal structures that give owners limited liability.
- Explain how limited liability affects an owner's willingness to invest.
- Compare the main legal structures using criteria such as liability, control, finance and continuity.
- Apply legal structures to a new start-up business and a large established business, explaining why each structure may or may not be appropriate.
- Reach and justify a conclusion about the most appropriate legal structure for each business example.
Business ownership exam tips
Marking Points
- Defines a sole trader as a business owned by one person, who may employ others but retains ownership and control.
- Explains that the owner provides capital, takes decisions, and keeps profit after tax, which can motivate the owner.
- Explains unlimited liability: personal assets can be used to pay business debts, increasing financial risk.
- Explains advantages such as ease of setup, full control, and retention of profit.
- Explains disadvantages such as limited finance, limited specialist skills, and full personal risk.
- Applies the concept to a named or described example, such as a plumber or online retailer, showing how ownership affects decisions and risk.
- Defines a partnership as a business owned by two or more people who share ownership and control.
- Explains that partners share capital, profits, and decision-making, often guided by a partnership agreement.
- Explains unlimited liability for partners: personal assets can be used to settle business debts, increasing risk.
- Explains advantages such as more finance, shared skills, and shared workload compared with a sole trader.
- Explains disadvantages such as shared profits, potential disagreements, and joint liability for debts.
- Applies partnership concepts to a scenario, showing how shared ownership affects finance, control, and risk.
- States that a private limited company is incorporated and has a separate legal identity from its owners.
- Explains that shares are sold privately and cannot be advertised to the general public.
- Explains that shareholders benefit from limited liability, so personal assets are protected beyond the amount invested.
- Identifies that 'ltd' must appear after the company name and that registration at Companies House is required.
- Explains that finance can be raised by selling shares to private investors, which is easier than for a sole trader or partnership.
- Explains that control may be diluted as more shareholders are admitted, and that accounts must be filed and are publicly available.
- Applies the concept to a given business context, such as a family firm expanding without losing personal assets.
- States that a public limited company is incorporated and has a separate legal identity from its owners.
- Explains that shares can be advertised and sold to the general public, often through a stock exchange.
- Explains that shareholders have limited liability, so their personal assets are protected.
- Identifies that 'plc' must appear after the company name and that greater regulation and disclosure apply.
- Explains that a plc can raise larger amounts of capital than a private limited company because shares are available to the public.
- Explains that control can be lost or diluted because shares are freely traded and ownership can change.
- Applies the concept to a given business context, such as a firm expanding nationally while accepting public scrutiny.
- Defines a not-for-profit organisation as one whose main aim is to fulfil a social, community or charitable mission rather than to generate profit for owners.
- Explains that any surplus or profit is retained and reinvested into the organisation's mission, not distributed as dividends to owners or shareholders.
- Identifies common legal forms such as charities, social enterprises, co-operatives and community interest companies, and links each to the not-for-profit category.
- Describes how such organisations generate income, for example through trading, grants, donations, membership fees or fundraising, and why income is still necessary.
- Explains at least one advantage, such as access to volunteers, donations or favourable tax treatment, and one limitation, such as difficulty raising large amounts of capital or legal restrictions on surplus use.
- Identifies and names a range of legal structures, including sole trader, partnership, private limited company, public limited company, and not-for-profit organisations.
- Explains the key difference between unincorporated and incorporated structures, including separate legal identity and limited versus unlimited liability.
- Describes how ownership, control and profit distribution vary between structures, for example sole trader versus private limited company.
- Explains how the choice of legal structure affects access to finance, risk, tax and administrative requirements.
- Applies knowledge to a business scenario by recommending a suitable legal structure and justifying the choice with reference to the context.
- Explains how management and control differ: sole traders decide alone, partners share decisions, and companies are run by directors accountable to shareholders.
- Analyses sources of finance: sole traders rely on personal savings, loans and retained profit; partnerships pool capital; Ltds and PLCs can issue shares, with PLCs able to raise larger sums via the stock market.
- Explains liability: sole traders and ordinary partners have unlimited liability, while shareholders in a Ltd or PLC have limited liability.
- Analyses distribution of profits: sole traders and partners keep or share profits directly, whereas companies pay dividends to shareholders and retain some profit.
- Reaches a supported judgement linking the chosen structure to the business's size, risk and growth ambitions.
- Defines limited liability as the owners' personal assets being protected beyond their invested capital.
- Explains that a company is a separate legal entity, which is why shareholders have limited liability.
- Identifies which structures benefit: private limited companies, public limited companies and limited liability partnerships.
- Contrasts this with sole traders and ordinary partners, who have unlimited liability and risk personal assets.
- Explains the effect on investment: limited liability encourages shareholders to invest because their potential loss is capped.
- Identifies and describes at least two legal structures, such as sole trader, partnership, private limited company (Ltd) and public limited company (plc), using correct business terminology.
- Explains advantages and disadvantages of each structure in context, for example unlimited liability for a sole trader, shared decision-making in a partnership, or ability to sell shares for a plc.
- Applies the structures to a new start-up business, considering factors such as limited finance, owner control, risk and ease of set-up.
- Applies the structures to a large established business, considering factors such as raising capital, limited liability, continuity and public scrutiny.
- Reaches a justified conclusion that compares structures and selects the most appropriate one for each example, using evidence from the context.
Examiner Tips
- 💡Define the term precisely, then link one advantage and one disadvantage to the case or scenario.
- 💡Use the phrase 'unlimited liability' accurately and explain what it means for the owner's personal assets.
- 💡When evaluating, weigh control and profit retention against risk and finance limits before reaching a judgement.
- 💡Define partnership clearly, then explain how shared ownership affects finance, control, and risk.
- 💡Use the term 'unlimited liability' and explain its impact on partners' personal assets.
- 💡When evaluating, compare partnerships with sole traders or limited companies before making a recommendation.
- 💡When asked to explain a benefit, link limited liability to a specific owner's personal risk, such as protecting their home.
- 💡Use the context in the case study: name the business and the owners rather than writing generically about 'a company'.
- 💡For evaluation questions, weigh the cost of public accounts and diluted control against the benefit of easier finance.
- 💡Check that you have used the correct abbreviation 'ltd' and not 'plc' when referring to a private limited company.
- 💡Link the ability to sell shares to the public to the scale of finance a plc can raise, using the case study context.
- 💡For evaluation, compare the benefit of large-scale finance with the drawbacks of loss of control and public disclosure.
- 💡Use the correct abbreviation 'plc' and avoid writing 'PLC' inconsistently unless the business name uses that style.
- 💡Refer to the stock exchange by name only if it is relevant to the context, such as the London Stock Exchange.
- 💡When asked to explain a not-for-profit organisation, always state the mission and what happens to any surplus, using a named example such as a community sports club or a charity shop.
- 💡Use comparative language if the question asks you to distinguish not-for-profit from private limited companies, for example by contrasting dividend distribution with reinvestment.
- 💡Apply the concept to a short case study by identifying the organisation's aim and then explaining how its legal form affects its funding or decision-making.
- 💡When comparing legal structures, use a table or clear paragraphs to contrast liability, ownership, finance and control.
- 💡In application questions, name the structure and then link its features directly to the case study details, such as the need for capital or the owner's attitude to risk.
- 💡For evaluation questions, weigh up the advantages and disadvantages of at least two structures before making a justified recommendation.
- 💡Use the case study's context, such as the owner's need for control or capital, to justify your analysis rather than listing generic points.
- 💡Structure each paragraph around one issue, for example liability, then state the benefit and drawback for the business in question.
- 💡Finish with a clear judgement that weighs the most important factor for that specific business.
- 💡Define limited liability precisely, then name the structures that benefit, using the case study's owners where possible.
- 💡Link limited liability to a consequence, such as increased willingness to invest or reduced personal risk.
- 💡Contrast it with unlimited liability to show understanding of both sides.
- 💡Use the business context in every paragraph: name the example and link each advantage or disadvantage directly to it.
- 💡Structure your answer around a clear judgement: compare at least two structures, then state which is most appropriate and why.
- 💡Include a counter-argument or limitation to show evaluation, for example why a partnership might still fail despite shared capital.
- 💡Keep your conclusion decisive: avoid sitting on the fence and avoid repeating earlier points without adding judgement.
Common Mistakes
- Thinking a sole trader must work alone; correction: a sole trader can employ staff while remaining the sole owner.
- Confusing unlimited liability with limited liability; correction: unlimited liability means personal assets are at risk, whereas limited liability protects personal assets.
- Assuming sole traders cannot keep profits; correction: after tax, the sole trader keeps all profit, which is a key advantage.
- Believing sole traders cannot raise finance; correction: they can use personal savings, loans, or retained profit, though options may be more limited than for larger businesses.
- Thinking partnerships always have limited liability; correction: most partnerships have unlimited liability, so personal assets are at risk.
- Assuming all partners must contribute equal capital or receive equal profits; correction: contributions and profit shares can vary and should be set out in a partnership agreement.
- Believing partnerships are legally restricted to a maximum of 20 partners; correction: the historical 20-partner limit was abolished in the UK in 2002, so partnerships can have many more members.
- Ignoring the need for a partnership agreement; correction: a written agreement helps prevent disputes over roles, profits, and decision-making.
- Confusing private limited companies with public limited companies: a private limited company sells shares privately and cannot advertise them to the public, whereas a public limited company can.
- Thinking that limited liability means the business cannot fail: it means owners' personal assets are protected, not that the business is risk-free.
- Believing that a private limited company must have many shareholders: it can be owned by one person, but it still has a separate legal identity.
- Forgetting that 'ltd' is a legal requirement in the company name, not an optional label.
- Confusing public limited companies with public sector organisations: a plc is privately owned by shareholders, not owned by the government.
- Thinking that a plc is always larger than a private limited company: size is not the defining feature; the ability to offer shares to the public is.
- Believing that limited liability removes all risk: shareholders can still lose the money they invested if the company fails.
- Forgetting that a plc must publish accounts, which can reveal information to competitors.
- Assuming not-for-profit organisations cannot make a surplus. Correction: they can and often must generate a surplus to reinvest, but they do not distribute it to owners.
- Confusing not-for-profit with a charity. Correction: all charities are not-for-profit, but not all not-for-profit organisations are charities; social enterprises and community interest companies are other examples.
- Believing not-for-profit organisations do not need to cover costs. Correction: they must still generate enough income to pay staff, bills and other expenses, or they will fail.
- Thinking a private limited company and a public limited company are the same. Correction: a private limited company cannot offer shares to the general public, while a public limited company can.
- Believing a partnership always has limited liability. Correction: in a standard partnership, partners usually have unlimited liability, although limited liability partnerships exist.
- Assuming a sole trader cannot employ staff. Correction: a sole trader can employ staff, but remains the sole owner with unlimited liability.
- Confusing a franchise with a legal structure. Correction: franchising is a method of growth, not a legal structure like a sole trader or limited company.
- Assuming all partners have limited liability; in an ordinary partnership they do not, though a limited liability partnership does.
- Confusing a private limited company with a public limited company; only a PLC can offer shares to the general public on a stock exchange.
- Treating limited liability as protection for the business itself; it protects the owners' personal assets, not the company from debts.
- Believing limited liability means the business cannot fail or owes no debts; the company still owes its debts, but owners' personal assets are protected.
- Thinking a sole trader automatically has limited liability; a sole trader must incorporate to gain it.
- Assuming all partnerships have limited liability; only a limited liability partnership does, not an ordinary partnership.
- Listing structures without linking them to the business example; correction: always apply each structure to the specific start-up or established business and explain why it fits or does not fit.
- Confusing unlimited liability with limited liability; correction: state clearly that sole traders and ordinary partners have unlimited liability, while shareholders in a Ltd or plc have limited liability.
- Assuming a plc is always best because it can raise the most finance; correction: weigh drawbacks such as loss of control, disclosure requirements and cost of incorporation before judging.
- Ignoring the new start-up context and recommending a plc; correction: consider that a new start-up may lack the trading record, finance and scale needed for a plc.