Business ownership and external environments

A small or medium enterprise, or SME, chooses an ownership arrangement that affects control, finance, liability and continuity. Size alone does not identify its legal structure. A sole trader is an individual operating a business. The owner makes decisions and receives the profit, but there is no separate legal identity separating business debts from the individual. Personal assets can therefore be exposed. Establishment and administration are comparatively simple, although the owner may struggle to raise finance or cover absences.

A partnership brings people together to operate a business and share its returns. Partners can contribute complementary skills and capital. In an ordinary partnership, personal liability and responsibility for other partners' business actions create risk. A written agreement should address contributions, profit sharing, decisions and departure. Disagreements can interrupt operations even when each partner is skilled. A small proprietary company is a separate legal entity owned by shareholders and managed by directors.

Shareholders generally have limited liability, but directors retain duties and personal guarantees can expose personal assets. Company administration and reporting are more demanding than for a sole trader.

A not-for-profit organisation exists to pursue its purpose rather than distribute profits to members. It can earn a surplus, employ workers and sell products; the surplus supports its purpose. Its legal structure can vary, so not-for-profit status does not itself identify liability. A franchise is an agreement allowing a franchisee to use a franchisor's brand and operating system, generally for fees. It can provide training and recognition while restricting products, suppliers or promotion.

Franchising is a business arrangement, not a distinct legal structure: a franchisee might operate through a company.

In an extended response, identify the owner's objective, compare the same criterion across alternatives, use evidence from the case and justify a recommendation. Do not declare any structure universally best. Explain the consequence of a feature: limited liability can protect shareholders' personal assets, while franchise restrictions can reduce local flexibility. State assumptions where the case lacks information.