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Business ownership and franchising

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Every new business must choose a legal form. The choice affects who owns it, who controls it and what happens if things go wrong.

Limited and unlimited liability

Unlimited liability: the owners are personally responsible for all the business's debts. They could lose their house or savings.
Limited liability: owners can only lose the money they invested. The business is a separate legal entity from its owners.

Types of ownership

Franchising

A franchisor sells the right to use its brand and business model to a franchisee, who pays a fee and usually a share of revenue (a royalty).
For the franchisee: proven idea, known brand, training and support, so lower risk. But high fees, strict rules and less independence.
For the franchisor: fast growth with less of its own money, but less control over quality.
Worked example

Sam runs a window-cleaning business as a sole trader. A customer sues for £20 000 and the business has only £5000. What could happen?

  1. A sole trader has unlimited liability.
  2. Sam is personally responsible for the debt.

Answer: Sam may have to pay the rest from personal savings or assets.

Key idea

Unlimited liability: owners can lose personal assets. Limited liability: they can only lose what they invested. Sole traders and partnerships usually have unlimited liability; Ltd companies have limited liability. Franchises cut risk but cost fees and freedom.

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