Business Structures and Organisation
What this domain covers
Businesses can be set up and organised in different ways. Candidates must know the main legal structures, their ownership, liability and control, and how organisations are arranged internally.
Legal structures to know
- Sole trader: one owner, unlimited liability, simple to set up, keeps all profit but bears all risk.
- Partnership: two or more owners, usually unlimited liability, shared capital and decisions; a partnership agreement sets terms.
- Private limited company (Ltd): separate legal identity, limited liability, shares not offered to the public.
- Public limited company (Plc): limited liability, shares traded publicly, must meet stricter regulation.
- Not-for-profit / charity / co-operative: objectives other than profit; surplus reinvested.
Organisation and functions
- Functional structure: grouped by function (finance, marketing, operations).
- Span of control: number of staff a manager supervises; chain of command: line of authority.
- Centralised vs decentralised decision-making.
- Core functions: operations, marketing, HR, finance.
Traps in questions
- Confusing limited liability (owners' personal assets protected) with unlimited liability (sole traders/partners at risk).
- Thinking a Ltd and a Plc are the same - the Plc can offer shares to the public.
- Mixing span of control (how many report to one manager) with chain of command (the line of authority).
Rule of thumb
Match the structure to liability, ownership and public share offer. If owners risk personal assets → unlimited (sole trader/partnership). If a separate legal identity protects them → company.
Worked example: Two friends want to share profits but keep personal risk low and avoid public share listing → a private limited company (Ltd).