Forms of business ownership and legal structures
What the exam tests
You must compare ownership forms on liability, legal personality, capital, control, continuity, taxation and disclosure, then recommend a suitable form for a scenario. Cyprus examples often involve small family firms, professional partnerships and private companies.
Core rules
- Sole trader: one owner, unlimited liability, no separate legal personality, simple to set up, but limited capital and continuity depends on the owner.
- Partnership: two or more owners. In a general partnership, partners usually have unlimited liability and joint responsibility. A limited partnership has at least one general partner with unlimited liability and limited partners whose liability is capped. A partnership deed should set out profit-sharing and decision rules.
- Private limited company (Ltd): separate legal personality, limited liability, shares not offered to the public, greater disclosure and compliance. It can own assets, sue and continue beyond the death of a shareholder.
- Public limited company (PLC): may offer shares to the public and list on a stock exchange; stricter capital, reporting and governance rules.
- Cooperative: owned by members, usually one member one vote, profits distributed according to member activity rather than shareholding.
- Public corporation/state-owned enterprise: owned by the state to provide a public service or strategic good.
Worked example
Two friends want to open a design studio. They need €60,000; one friend will invest but not work in the business. They are worried about personal risk. Reasoning: a general partnership is cheap and flexible but exposes both to unlimited liability. A limited partnership could give the silent investor limited liability, but the working friend remains a general partner with unlimited liability. A private limited company gives both limited liability and continuity, and shares can be split without public listing. The recommendation is a private Ltd if compliance costs are affordable, because liability protection and continuity outweigh the setup burden.
Traps that cost marks
- Saying limited liability means “no risk”. Directors can still be liable for fraud, wrongful trading or personal guarantees.
- Forgetting that a sole trader can employ staff; “sole” refers to ownership, not the number of workers.
- Claiming a partnership always has a separate legal personality.
- Confusing a PLC with a public-sector organisation.
- Ignoring that “private” means shares are not offered to the public, not that the company is secret.