Types of business entities

Types of business entities

Sole trader

A sole trader, or sole proprietorship, is a business owned and operated by one person who is responsible for all aspects of the business, including its debts. 

Key Features

  • Single owner
  • Unlimited liability
  • Full control of decisions
  • Profits belong to the owner
  • Simplified tax reporting


A partnership is a business owned and operated by two or more individuals who share resources, profits, and losses. Partners can have equal responsibility and liability (general partnership) or limited involvement and liability (limited partnership). Typically, partners have unlimited liability, making them personally responsible for business debts.

Key Features

  • Two or more owners( 2- 20)
  • Shared decision-making
  • Shared profits
  • Joint liability
  • Partnership agreement

Public Limited company

A public limited company (PLC) is a corporation whose shares are publicly traded on a stock exchange. Shareholders have limited liability, responsible only up to their investment. A PLC can raise substantial capital through public offerings but faces greater scrutiny and governance standards.

Key features

  • Limited liability
  • Shares traded on a stock exchange
  • Minimum share capital requirement
  • Separate legal entity
  • Subject to stringent regulatory requirements

Private limited company

A private limited company (Ltd) is a privately held corporation whose shares are not publicly traded. Shareholders have limited liability, protecting personal assets from company debts. Ownership is usually restricted and often family-owned or closely held. An Ltd benefits from limited liability and separate legal status but has more restrictions on raising capital compared to a PLC.

Key features

  • Limited liability
  • Shares are not publicly traded
  • Restriction on share transfers
  • Separate legal entity
  • Fewer regulatory requirements compared to PLC

Multiple Choice Questions

Question 1: Which of the following is a key characteristic of a sole trader?
A) Shared profits
B) Limited liability
C) Single owner
D) Separate legal entity
Explanation: "Single owner" is the key characteristic of a sole trader.
Which type of business entity allows for unlimited number of shareholders and can sell shares to the public?
A) Sole trader
B) Partnership
C) Public limited company (PLC)
D) Private limited company (Ltd)
Explanation: Public limited company (PLC) allows for unlimited number of shareholders and can sell shares to the public.
Question 3: Which of the following best describes a partnership?
A) A business owned and run by one person
B) Limited liability for shareholders
C) Sole ownership and control
D) No requirement to file annual accounts
Explanation: Limited liability for shareholders.
Question 4: What is a primary advantage of a private limited company (Ltd)?
A) Ability to sell shares to the public
B) Secondary Sector
C) Tertiary Sector
D) Quaternary Sector
Explanation: Research and development activities fall under Quaternary Sector .
Question 5: What is a key difference between a public limited company (PLC) and a private limited company (Ltd)?
A)Only PLCs can have more than one owner
B) PLCs can sell shares to the general public, while Ltds cannot
C) Ltds have unlimited liability, while PLCs have limited liability
D) Only Ltds are required to have a board of directors
Explanation: PLCs can sell shares to the general public, while Ltds cannot.

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