IGCSE Business: Types of business organisation (Cambridge 0264) – Revision Notes

These notes condense section 1.4 (Types of business organisation) of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. For full explanations and worked examples, read the study guide. Test yourself with the practice questions, tick off topics on the printable checklist, and see the course hub for the rest of the syllabus. If you are unsure where you stand, take a free diagnostic first.

All candidates take Paper 1 (Short Answer and Data Response) and Paper 2 (Case Study). Both are based on all the subject content, so this topic can appear in either. Money figures are in dollars ($) and all businesses are invented.

Key definitions

Term	Meaning
Sole trader	A business owned (and usually run) by one person
Partnership	A firm with two or more owners who agree to share profit, work and risk
Private limited company (Ltd)	A company owned by shareholders; the public cannot buy its shares directly
Public limited company (plc)	A company owned by shareholders; it may offer its shares to the general public
Shareholder	An owner of a company, holding shares
Dividend	Part of a company’s profit paid to shareholders
Unlimited liability	Owners can be made to pay business debts from personal assets
Limited liability	Owners can lose only the money they invested
Franchise	A right to use another business’s brand, products and methods in return for payment
Franchisor	The business that grants the franchise
Franchisee	The business or person that buys the franchise
Royalty	A regular payment by the franchisee, often a percentage of sales
Joint venture	Two or more businesses cooperating on a project or in a market, sharing costs, risks and rewards
Social enterprise	A business that trades mainly to achieve social or environmental aims

The four main types at a glance

	Sole trader	Partnership	Private limited	Public limited
Owners	1	2 or more	Shareholders	Shareholders
Liability	Unlimited	Unlimited (usual position)	Limited	Limited
Share sale to the public	No	No	No	Yes
Capital	Smallest	Small to medium	Medium	Largest
Control	Owner alone	Shared	Founders or shareholders	Spread widely
Set-up	Easiest	Easy	More formal	Most formal

Advantages and disadvantages: quick recall

Sole trader

• For: simple, cheap, full control, keeps all profit.
• Against: unlimited liability, little capital, owner carries all work and risk.

Partnership

• For: shared capital, skills and workload; more than one decision-maker.
• Against: unlimited liability, shared profit, possible disputes.

Private limited company

• For: limited liability, more capital through share sales, founders choose who joins.
• Against: more paperwork and cost, cannot sell shares to the public, control can dilute.

Public limited company

• For: large capital, limited liability, easy to trade shares, easier borrowing.
• Against: high costs, strict regulation, accounts widely available, risk of takeover, pressure for short-term results.

Franchise: both sides

	Advantages	Disadvantages
Franchisor	Expands with the franchisee’s money; motivated local owner; fee and royalty income	Shares profit; brand harmed by weak franchisees; less control than owned outlets
Franchisee	Known brand; support and training; lower risk than starting alone	Pays fee and royalty; must follow rules; limited freedom; shares brand reputation

Joint venture

• For: shared costs and risk; combined skills and knowledge; faster entry to a new market.
• Against: shared profit; possible disagreement; slower decisions; unclear responsibility.

Social enterprise

• Sells goods or services like any business, but social or environmental aims come first.
• Profit is mainly reinvested in the aims.
• For: goodwill, committed staff, a clear purpose.
• Against: less money for growth, harder to attract investors who want returns.

Method boxes

Method: recommend and justify a type (case study)

1. Underline the facts: capital needed, risk, control wanted, growth plans, number of owners.
2. Match facts to features in the table above.
3. State your recommendation in one sentence.
4. Give two or three reasons, each linked to a fact from the case.
5. Explain why one other type is weaker for this business.
6. End with a short judgement that mentions any drawback of your choice.

Method: franchise payments

1. Royalty = percentage x sales.
2. Franchisee profit after royalty = profit before royalty - royalty.
3. If asked about year one, also take off the initial fee.

Method: profit shares

1. Add the ratio parts to find the total.
2. Share = own part divided by total, multiplied by profit.
3. Check the shares add back to total profit.

Small worked reminders

Partnership profit of 45,000 shared 2:1. Total parts = 3. One partner gets 2/3 x 45,000 = 30,000 and the other gets 15,000.

A plc pays a dividend of 0.25 per share. An investor holding 8,000 shares receives 8,000 x 0.25 = 2,000. If the company has 500,000 shares, the investor owns 8,000/500,000 = 1.6%.

A franchisee has sales of 150,000 and pays an 8% royalty: 0.08 x 150,000 = 12,000 a year, or 60,000 over five years.

A joint venture costing 500,000 is shared 3:2. The first partner pays 3/5 x 500,000 = 300,000 and the second pays 200,000.

A sole trader owes 20,000 and the business assets raise 14,000. The shortfall is 6,000. With unlimited liability, the owner pays it. With limited liability, the creditors lose it.

Must-know distinctions

Pair	Key difference
Private v public limited company	Public can offer shares to the general public; private cannot
Sole trader v private limited company	Sole trader has unlimited liability and one owner; Ltd has limited liability and shareholders
Franchise v joint venture	Franchise is brand-use for a fee; joint venture is two businesses sharing a project and its results
Franchisor v franchisee	Franchisor owns the brand; franchisee runs the outlet
Social enterprise v ordinary business	Social aims come first, with profit mainly reinvested
Limited liability v no risk	Owners can still lose all they invested

Applying the content

Cambridge assesses application, analysis and evaluation as well as knowledge, so a list of textbook points is rarely enough. Name the business, use its figures, and say what a feature means for that business. A sentence such as “limited liability protects the owner’s house” is knowledge. Adding “so Ms Okoro can borrow to open a second shop without risking her home” is application.

Command words for this topic

Cambridge lists these command words with the meanings below.

Command word	What it means	Typical use here
State	Express in clear terms	State one feature of a partnership
Identify	Name, select or recognise	Identify the type of organisation in the stem
Define	Give precise meaning	Define limited liability
Outline	Set out the main points	Outline two features of a franchise
Explain	Make the relationships clear, say why and how, and support with evidence	Explain one advantage of a joint venture
Calculate	Work out from given figures	Calculate each partner’s share
Justify	Support a case with evidence or argument	Justify a recommended type
Consider	Review and respond to given information	Consider whether a franchise is suitable

Quick self-test

1. Define the term limited liability.
2. State two types of business with unlimited liability.
3. What is the main difference between a private and a public limited company?
4. A partnership makes a profit of 60,000 shared 3:1. How much does the larger partner get?
5. A company with 200,000 shares pays out 30,000 as dividends. What is the dividend per share?
6. A franchisee pays a royalty of 5% on sales of 180,000. Calculate the royalty.
7. Give one advantage of a franchise to the franchisor.
8. Give one disadvantage of a franchise to the franchisee.
9. State one reason two businesses might form a joint venture.
10. What is a social enterprise?

Answers

1. Owners can lose only the money they invested in the business; their personal assets cannot be claimed for business debts.
2. Sole trader and partnership.
3. A plc can sell shares to the general public; a private limited company cannot.
4. 3/4 x 60,000 = 45,000. The other partner gets 15,000.
5. 30,000/200,000 = 0.15 per share.
6. 0.05 x 180,000 = 9,000.
7. It can expand using the franchisee’s capital, or it receives fees and royalties.
8. It must pay an initial fee and royalties, or it must follow the franchisor’s rules.
9. To share costs and risks, or to gain skills or access to a market.
10. A business that trades mainly to achieve social or environmental aims, reinvesting most profit in them.

Where marks are usually lost

• Using general points that could apply to any business, with no link to the case.
• Stating an advantage or disadvantage without explaining the reason or effect.
• Mixing up limited liability and limited risk.
• Saying private companies “sell shares privately to anyone” rather than that they cannot offer them to the public.
• Treating the franchisee as part of the franchisor’s business.
• Forgetting to calculate the royalty before the franchisee’s profit.
• Giving a recommendation with no reasons or no comparison with another type.
• Making a one-sided judgement that ignores the drawbacks of the type chosen.
• Writing “profit” when the question asks for revenue or dividends.

Frequently asked questions

What is the difference between a private and a public limited company? A private limited company (Ltd) cannot offer its shares to the general public, so they are sold privately. A public limited company (plc) can sell shares to the public, usually through a stock exchange, so it can raise much larger sums.

Does limited liability mean a company cannot fail? No. A limited company can still fail; limited liability means the owners lose only the money they put into the business, while their personal assets are protected from its debts.

Is a franchisee an employee of the franchisor? No. The franchisee owns its outlet and pays the franchisor for the right to use the brand, products and methods, usually through an initial fee plus a regular royalty.

What is a social enterprise? A social enterprise is a business that trades to achieve social or environmental aims, mainly reinvesting any profit in those aims rather than paying it to owners. It still needs sales revenue to cover its costs.

Official syllabus

Aligned to section 1.4 of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International Education).