IGCSE Economics Unit 3.5 Firms
IGCSE Economics: Classification of firms
#1 Day in the life of a Sole Trader at Mia's Cakes
Monday
I love being my own boss. I set my prices, choose my recipes and keep all the profit. As a sole trader, it’s just me running the business.
But today was stressful. The oven broke — and I have to pay for repairs myself. If the business cannot pay its debts, I have unlimited liability… which means my personal savings could be used too!
I find it hard to raise money for expansion. Banks see me as risky because I’m only one person. I can’t sell shares to raise capital like larger companies can.
Decision-making is quick — no meetings needed! However, I also work long hours because there’s no one to share the workload.
Sometimes I wish I could share the responsibility… but I do enjoy keeping all the profit and having full control.
#1 Sole Trader Questions
1) What type of business organisation is Mia running? How do you know?
2) What does unlimited liability mean for Mia personally?
3) Why might banks see her business as risky?
4) Advantages & Disadvantages
5) Explain one advantage of Mia being the only owner.
6) Explain one disadvantage of being a sole trader.
7) Do you think keeping all the profit makes up for the risks? Why or why not?
Thinking Further
8) Under what circumstances might Mia decide to change her business structure?
9) Would this structure be suitable for a large national bakery chain? Explain your answer.
#2 Day in the life of a Partnership (Smile Dental)
Diary of Dr. Sam – Partner at SmileBright Dental
Wednesday
Being in a partnership means I share ownership of the dental clinic with Dr. Lee. We invested equal capital and share profits equally. We have a partnership agreement to outline our responsibilities.
The good thing? We share responsibilities and workload. When I’m tired, Dr. Lee can take over patients, and we can specialise in different treatments.
The bad thing? We disagree on everything! I want to invest in new equipment, but she thinks it’s too expensive. Decision-making can be slow because we must both agree.
We both have unlimited liability, so if the clinic gets into debt, our personal assets are at risk. That makes arguments about spending even worse.
Sometimes I wonder if working alone would be simpler… but at least I’m not carrying all the risk by myself.
#2 Partnership Questions
1) What is a partnership?
2) Why might dentists choose to work in a partnership instead of alone?
3) What is meant by unlimited liability in this case?
4) Advantages & Disadvantages
5) Explain one benefit of sharing ownership.
6) How could disagreements affect the business?
7) Why might decision-making be slower than in a sole trader business?
Thinking Further
8) Do you think the partnership structure is suitable for professional services like dentists and lawyers? Why?
9) If the clinic wanted to expand nationally, would this structure still be suitable? Explain.
Diary of Aisha – Owner of TechStyle Ltd
Friday
My company is a private limited company. That means shareholders own it, and we have limited liability. If the business fails, shareholders only lose the money they invested. The company has a separate legal identity from its owners.
This makes it less risky than being a sole trader. We’ve grown quickly and attracted several private investors.
However, we cannot sell shares to the general public — only privately to family, friends or selected investors. This limits how much capital we can raise.
We need more finance to expand internationally. I’m thinking about turning the company into a public limited company (Plc) so we can sell shares on the stock exchange.
But that would mean more paperwork, stricter regulation, publishing our accounts publicly, and possibly losing some control over decision-making…
#3 Ltd Questions
1) What does limited liability mean for shareholders?
2) What is meant by a “separate legal identity”?
3) Why can’t this business sell shares to the general public?
4) Advantages & Disadvantages
5) Explain one advantage of being a private limited company instead of a partnership.
6) Why might raising finance still be difficult?
7) Why could turning into a Plc lead to loss of control?
Thinking Further
8) What factors should Aisha consider before going public?
9) Would limited liability encourage more people to invest? Why?
#4 Public Limited Company (PlC's) Big Risks, Big Reward
Diary of Daniel – CEO of FutureAI Plc
Tuesday
As CEO of FutureAI Plc, I manage a company owned by thousands of shareholders. Our shares are traded on the stock exchange, meaning anyone can buy and sell them.
Being a Plc allows us to raise huge amounts of capital. We recently raised millions to develop a new artificial intelligence product.
Shareholders have limited liability, which encourages people to invest because they cannot lose more than the value of their shares.
However, there is constant pressure. Every decision affects our share price, and we must publish detailed financial accounts each year.
Although I run the company, the shareholders are the real owners. If profits fall or they lose confidence, they could vote to replace me at the annual general meeting.
#4 PLC Questions
1) Who owns a public limited company?
2) Why can a Plc raise more capital than other business structures?
3) What is the role of shareholders?
4) Advantages & Disadvantages
5) Explain one advantage of being a Plc.
6) Explain one disadvantage of being a Plc.
7) Why might the CEO feel pressure from shareholders?
Thinking Further
8) Do you think the separation of ownership and control is an advantage or disadvantage? Explain.
9) Would this structure be suitable for a small local business? Why or why not?