In the UK, businesses can be formed in several different legal structures, each with its own advantages, responsibilities, and regulatory requirements. The main types of commercial organisations include the following:
1. Sole Traders
A sole trader business is owned and operated by one individual. It is the simplest form of business structure and is widely used by freelancers, contractors, and small-scale entrepreneurs.
- The owner has full control over decision-making.
- They receive all profits but are also personally responsible for all debts and liabilities (unlimited liability).
- The business is not considered a separate legal entity from the owner.
2. Partnerships
A partnership involves two or more individuals sharing ownership and responsibility for a business. Partners contribute skills, resources, or capital and share profits according to an agreed ratio. There are two main types:
General Partnerships: All partners manage the business and share unlimited liability for debts.
Limited Partnerships: At least one partner has unlimited liability (a general partner), while others (limited partners) contribute capital and have liability limited to their investment.
Partnerships often suit professionals such as solicitors, accountants, and consultants who wish to pool expertise.
3. Limited Liability Companies (LLCs)
Incorporated companies exist as separate legal entities, meaning the business can own assets, enter contracts, and be held liable independently of its owners. In the UK, the two primary forms are:
(i) Private Limited Companies (Ltd)
- Ownership is divided into shares held privately by individuals or corporate shareholders.
- Shareholders’ liability is limited to the amount they invested.
- These companies are typically smaller or medium-sized enterprises.
- They have fewer disclosure requirements and cannot offer shares to the public.
- They are not listed on a stock exchange.
Private limited companies are common among growing businesses that want limited liability protection and the credibility of incorporation without the complexity of public markets.
(ii) Public Limited Companies (PLC)
- Also incorporated, with shareholders’ liability limited to their investment.
- Must meet stricter reporting and governance obligations due to public accountability.
- Can raise capital by offering shares to the general public.
- Are eligible to be listed on a stock exchange, such as the London Stock Exchange.
- PLCs are usually large organisations with substantial capital requirements and public investor interest.
Commercial Organisations vs Not-for-Profit Organisations
Commercial organisations exist primarily to generate profit for their owners or shareholders. Their activities usually involve producing and selling goods or services in order to earn revenue, grow market share, and maximise returns.
In contrast, not-for-profit organisations (NFPs) are established to pursue social, charitable, educational, or community-focused objectives.
- They do not operate for the personal gain of members or directors.
- Surpluses are reinvested into achieving the organisation’s mission rather than distributed as profit.
- Common UK examples include charities, religious institutions, trade unions, professional associations, and community interest organisations.
While commercial organisations rely on trading income, not-for-profit bodies often depend on donations, grants, fundraising events, volunteer support, and public or private sector funding. Their focus is impact, not profit, though they may still engage in trading activities to support their work.
