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7 
2.3 Private sector commercial business organisations
A 
commercial
business organisation exists to make a profit. In other words, the costs of its activities 
should be less than the revenues it earns from providing goods or services. Profits are not incidental to 
its activities but the driving factor. 
Business organisations come in all different shapes and sizes, and there is a choice of legal structure. 
2.3.1 Legal status 
Someone setting up a business can choose to go into business 
alone
, take on one or more 
partners
who 
also share the profits of the business, or set up a 
limited company
. 
2.3.2 Limited companies 
A 
limited company
 
has a separate legal personality from its owners (shareholders). The shareholders 
cannot normally be sued for the debts of the business unless they have given some personal guarantee. 
Their risk is generally restricted to the amount that they have invested in the company when buying the 
shares. This is called 
limited liability
. 
Whereas sole traderships and partnerships are normally small or medium-sized businesses, limited 
company status is used for businesses of any size. 
The 
ownership
and 
control
of a limited company are 
legally separate
even though they may be vested in 
the same individual or individuals. 
(a) 
Shareholders are the owners
but have limited rights, as shareholders, over the day to day 
running of the company. They provide capital and receive a return. Shareholders could be large 
institutional investors (such as insurance companies and pension funds), private individuals, or 
employees. 
(b) 
Directors are appointed by shareholders to run the company
. In the UK, the board of directors 
controls management and staff, and is accountable to the shareholders, but it has responsibilities 
towards both groups – owners and employees alike. 
(i)