Good morning everyone. Today we are going to talk about business ownership and how it affects the sources of finance a business can use. This is an important topic because the type of ownership a business chooses will determine how it is run, who makes decisions, and where it can get its money from.
Let’s start by thinking about the different types of business ownership. The simplest one is a sole trader. This is when one person owns and runs the business, like a small shop owner, a freelancer, or a local baker. A sole trader keeps all the profits but also takes all the risks. If the business owes money, the owner is personally responsible. That means if the business fails, their personal savings could be used to pay debts.
Next, we have a partnership. This is when two or more people own a business together. Think of two friends opening a café or a law firm run by several partners. They share the profits, but they also share the risks and responsibilities. Partnerships can raise more money than sole traders because there are more people investing, but they still have limited options for large-scale finance.
Then there are private limited companies, also called Ltds. These businesses are legally separate from their owners, which means if the business fails, the owners do not lose their personal possessions. Their risk is limited to the amount they have invested in the company. Private limited companies can raise finance by selling shares, but only to selected people such as family members or private investors. They can also use bank loans, retained profits, or funds from investors like venture capitalists. For example, a small technology company might invite an investor to buy shares to help it expand.
After that, we have public limited companies, or PLCs. These are large businesses that can sell their shares to the public through the stock exchange. Because of this, they can raise huge amounts of capital. Companies like Tesco and Unilever are PLCs. They can also raise money through corporate bonds or institutional investors such as banks and insurance companies. However, PLCs must follow strict rules and be transparent about their finances because the public invests in them.
Next, there are co-operatives and social enterprises. These types of organisations usually aim to achieve social or community goals rather than focus purely on profit. They often get their finance from government grants, donations, crowdfunding, or ethical investors who care about the cause. For example, a local recycling initiative or a community farm might get donations from supporters or funding from the government.
Finally, we have public sector organisations. These are owned and managed by the government and funded through taxes and public budgets. They do not operate to make a profit but to provide services for society. For example, schools, hospitals, and police departments are all funded by the government through taxpayers’ money.
Now, let’s connect this to financial decision-making. The form of ownership affects not only how much money a business can raise but also the level of control and risk involved. For instance, if a PLC issues more shares, the original owners lose some control because more people own parts of the business. On the other hand, a sole trader has complete control but may struggle to raise enough money for growth. Taking bank loans means having to pay interest, which increases financial pressure. For social enterprises, financial choices must match their ethical goals.
So, to sum it all up, the type of ownership directly affects the sources of finance available. Sole traders and partnerships usually depend on personal savings or small loans. Private limited companies can raise funds privately, while public limited companies can raise large amounts by selling shares to the public. Co-operatives and public sector organisations depend more on grants and non-commercial funding.
By the end of this lesson, you should understand how ownership type influences financial opportunities, control, and risk. When choosing a form of ownership, businesses must balance these factors caref
