The four issues every structure is compared on

1. Management and control, meaning who makes the decisions and how quickly they can be made.
2. Sources of finance available, meaning where the money to start and grow the business can come from.
3. Liability, meaning how much of their own money the owners stand to lose if the business fails.
4. Distribution of profits, meaning who the profit is shared between and how much each owner keeps.
5. One pattern runs through all four, because as ownership spreads across more people the business can raise more money but each owner controls less of it and keeps a smaller share.

The five structures side by side

Management and control

1. A sole trader has total control, so a decision to change prices on Monday can be in force by Tuesday, but there is nobody to share the load or challenge a bad call.
2. In a partnership control is shared, which brings in more skills but makes agreement slower and disagreement possible.
3. In a private limited company the shares are held by people the owners invited, so the business can raise money without handing control to strangers.
4. In a public limited company anybody can buy shares, so the founders can be outvoted and a rival with enough money can take the company over.
5. In a not-for-profit, trustees or a committee decide, and they are bound to act in the interest of the cause rather than of any owner.

Sources of finance

1. A sole trader is limited to savings, family, a bank loan, an overdraft and retained profit, and lenders are cautious because the business owns few assets to offer as security.
2. A partnership can draw capital from every partner, which is why professional practices needing expensive equipment often take this form.
3. A private limited company can sell shares to invited investors and borrows more easily, because it has a separate legal identity and published accounts a bank can check.
4. A public limited company can raise sums no other structure can reach, and unlike a loan that share capital never has to be repaid.
5. A not-for-profit draws on donations, grants and fundraising as well as trading, which brings in money no ordinary firm could ask for but is less predictable than sales.
6. Finance is usually what forces a change of structure, because a business normally changes form when it cannot fund the next step any other way.

Liability and distribution of profits

1. Sole traders and partnerships have unlimited liability, so a failed business can take the owner's savings, car and home with it.
2. Private and public limited companies have limited liability, so a shareholder who put in £5,000 can lose £5,000 and no more.
3. Liability changes behaviour as well as risk, because an owner whose home is at stake turns down contracts that a company would take on.
4. On profit, a sole trader keeps everything after tax, partners split it as the deed sets out, and shareholders receive dividends in proportion to their holding.
5. A plc spreads dividends across thousands of shareholders who expect a payout each year, which leaves less profit to reinvest than a family-owned Ltd can keep back.
6. A not-for-profit distributes nothing, because the surplus is reinvested in the cause the organisation exists to serve.