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An entrepreneur can opt to set up a new independent business and try to win customers. An alternative is to buy into an existing business and acquire the right to use an existing business idea. This is called franchising.

A franchise is a joint venture between:

  • A franchisee, who buys the right from a franchisor to copy a business format.
  • And a franchisor, who sells the right to use a business idea in a particular location.

Many well-known high street opticians and burger bars are franchises. Opening a franchise is usually less risky than setting up as an independent retailer. The franchisee is adopting a proven business model and selling a well-known product in a new local branch.

There is one more type of business organization that is different from the above ones. A non-profit corporation is usually created with a specific purpose, such as for educational, charitable, civic or artistic. Nonprofits are generally exempt from federal and state taxation on their income.



D. Choose the correct answer according to the information from the text:

1. What is the main advantage of being a sole trader?
a) unlimited liability b) limited liability c) be able to make quick decisions
  2. Who is limited liability an advantage to?
a) shareholders b) stakeholders c) sole traders
  3. What is a partnership?
a) a business owned by shareholders b) one person trading alone c) two or more individuals trading together
4. Who is a company controlled by?
a) shareholders b) stakeholders c) managers
5. What is a business that sells the right to use a business idea?
a) a franchisor b) a franchise c) a franchisee
6. Which of the following is NOT an advantage offered by a franchise?
a) a prime location b) a tested product c) a well-known brand
7. Who is a franchise bought by?
a) a franchisor b) a franchisee c) a wholesaler
  8. Which type of business does NOT usually have limited liability?
a) a public limited company   b) a multinational c) a partnership
9. Who has legal responsibility to settle debts in a company with unlimited liability?
a) owners b) shareholders c) stakeholders

E. Complete sentences using information from the text:

1) If you are sole trader you can …

2) The main advantage of partnership is …

3) Shareholders are the …

4) To have limited liability means …

5) If you go into business alone, it’s called …

6) Educational, religious and charitable institutions are …

7) In a private limited company all shareholders must agree before …

8) To have unlimited liability means …

9) Having a partner you don’t have to …

10) Sleeping partners are …


F. Fill in the table and in groups compare and contrast types of businesses.

  Sole trader Partnership Ltd PLC
ownership and control        


Reading 2: Types of organization structure

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