Unit 1.2 — Business structure
Learning outcomes (from the 9587 syllabus). This note is complete when every bullet below is covered.
Learning outcomes
- Legal structure: sole proprietorship, partnership, private limited company, public limited company; features of each; factors influencing choice of legal structure
- Economic sectors: roles of primary, secondary, tertiary sector businesses; roles of public and private sectors; other types of organisations (public-private partnerships, non-profit organisations, NGOs, social enterprises, charities)
Running example used throughout this note: Sunrise Bakery, a small bakery in Bedok. Mdm Tan started it as a one-woman business and is now deciding what legal structure to use as she grows.
Big picture
In plain English: “business structure” answers two questions: (1) who owns the business and who is responsible for its debts? (legal structure), and (2) which part of the economy does it operate in? (economic sector).
Analogy: choosing a legal structure is like choosing how to carry risk on a group trip. A sole trader carries everything alone (all the luggage and all the risk); a company spreads the load so no single person is personally on the hook for everything.
Core content
1. Legal structure
Legal structure decides ownership, liability, control, and how the business raises money. The four syllabus structures:
| Structure | Owners | Liability | Key features |
|---|---|---|---|
| Sole proprietorship (sole trader) | One person | Unlimited | Easiest to set up; owner keeps all profit; limited capital; business ends if owner dies or quits |
| Partnership | 2 or more partners | Unlimited (unless LLP) | Shared skills and capital; shared profit; risk of disputes; ends when a partner leaves |
| Private limited company (Pte Ltd) | Shareholders (few) | Limited | Separate legal entity; shares sold privately (not to the public); more rules; continues even if an owner leaves |
| Public limited company (Ltd) | Shareholders (public) | Limited | Shares sold to the public (listed on stock exchange); can raise large capital; heavy regulation; ownership separated from control |
Limited liability = owners only lose what they invested; they are not personally responsible for the company’s debts. Unlimited liability = owners are personally responsible — they may have to sell personal assets to pay business debts.
If Sunrise Bakery stays a sole proprietorship and takes a loan it cannot repay, Mdm Tan could lose her flat and savings (unlimited liability). If she converts to a Pte Ltd, only the money she put into the company is at risk (limited liability).
Factors influencing the choice of legal structure:
- Capital needed — more money needed → company (can attract investors); little money → sole trader.
- Risk / liability — high risk → limited liability (company); low risk → sole trader/partnership.
- Control — wanting full control → sole trader; willing to share → partnership/company.
- Continuity — business that must survive the owner → company.
- Cost and complexity — companies must register (ACRA in Singapore), file accounts, and follow more rules.
Mdm Tan needs about $200,000 to open a second outlet. As a sole trader she can only borrow from the bank (and risks her home). By becoming a Pte Ltd and selling shares to two friends, she raises capital, limits her liability, and the business can continue without her — but she must now share decisions and file company accounts.
2. Economic sectors
| Sector | What it does | Examples |
|---|---|---|
| Primary | Extracts or harvests natural resources | Farming, fishing, mining |
| Secondary | Manufactures / constructs goods | Factories, construction |
| Tertiary | Provides services | Retail, banking, transport, tourism, healthcare |
- Roles: primary provides raw materials; secondary turns them into products; tertiary provides services that both businesses and consumers need.
Singapore’s economy is dominated by the tertiary sector (banking, tourism, logistics, healthcare) because the country has little land for primary production and moved its secondary industries overseas or up the value chain. Sunrise Bakery is a secondary + tertiary business — it manufactures bread and also sells it as a service.
3. Public and private sectors
- Private sector = businesses owned by individuals or private companies (e.g. Sunrise Bakery, BreadTalk). Motive is usually profit.
- Public sector = organisations owned and run by the government (e.g. HDB for housing, PUB for water, SMRT for public transport). Motive is usually providing essential services, not profit.
PUB (public) provides water to everyone even where it is not profitable, while a private bottled-water company would only serve profitable markets. The government runs public services so that essential goods are available and affordable to all.
4. Other types of organisation
- Public-private partnership (PPP) — government and a private firm work together on a project, sharing costs and risks.
- Non-profit organisation (NPO) — uses any surplus to further its mission, not to pay owners.
- Non-governmental organisation (NGO) — independent of government, usually for a social/environmental cause.
- Social enterprise — a business that earns revenue but exists mainly to solve a social problem.
- Charity — raises funds for public benefit.
You are not required to know the detailed features of these — just recognise what each is.
NTUC FairPrice is a social enterprise (affordable essentials); the SPCA is an NGO (animal welfare); Community Chest is a charity; the Sports Hub was built partly through a public-private partnership.
Analysis & evaluation points (AO3/AO4)
- Limited vs unlimited liability is the key trade-off. Limited liability protects owners but comes with more rules and less privacy (accounts are filed).
- Control vs capital. A public company raises the most capital but owners lose control to outside shareholders.
- Public vs private sector: the public sector guarantees essential services and fairness, but may be less efficient (no profit pressure); the private sector is more efficient but may ignore unprofitable needs.
- PPP balances the two — private efficiency + public goals — but the partners’ objectives can clash (profit vs public service).
- Sector changes over time. As countries develop, they move primary → secondary → tertiary.
Language bank: however · on balance · it depends on · trade-off · in the short run … in the long run ·
Worked examples (PEEL)
PEEL = Point → Explain → Example → Link. Use this structure for every written answer.
Worked example 1 — “Explain” (6 marks)
Question: Explain two advantages to a business of becoming a private limited company.
- P (Point): The main advantage is limited liability.
- E (Explain): As a separate legal entity, the company — not the owners personally — is responsible for its debts, so owners risk only what they invested.
- E (Example): If Sunrise Bakery (Pte Ltd) fails and owes the bank money, Mdm Tan loses only her invested capital, not her personal flat.
- L (Link): This encourages owners to take calculated risks and invest in growth, which supports the business’s objectives.
Worked example 2 — “Evaluate” (10 marks)
Question: Evaluate whether the public sector or the private sector is better at providing essential services.
- P (Point): The public sector is better at ensuring essential services reach everyone.
- E (Explain): Because it is not driven by profit, the government can provide services even where they are unprofitable, and can keep prices affordable for lower-income groups.
- E (Example): PUB supplies water to every household in Singapore at a regulated, affordable price, whereas a private firm might cut off unprofitable areas or raise prices.
- L (Link): This shows the public sector is better at fairness and universal access.
- Evaluate (AO4): However, the private sector is often more efficient and innovative because of competition and profit pressure, so it may deliver better quality at lower cost. On balance, a mix works best — public provision for fairness and essential access, with private competition to drive efficiency (as Singapore does through PPPs and regulated private operators).
Application bank (Singapore quick reference)
| Idea | Singapore example |
|---|---|
| Pte Ltd is the norm | Most Singapore businesses (including many SMEs) register as Pte Ltd with ACRA |
| Public limited companies | SGX-listed: DBS, Singtel, SIA, CapitaLand |
| Public sector | PUB (water), HDB (housing), SMRT (transport), MOE schools |
| Public-private partnership | Sports Hub; some industrial infrastructure |
| Social enterprise | NTUC FairPrice, Project Dignity (hawker training) |
| NGO / charity | SPCA, WWF-Singapore, Community Chest |
Exam technique
- How it appears: a data-response question may describe a business and ask which legal structure it should adopt, or ask you to compare structures.
- Model skeleton for “recommend a legal structure”: state the business’s needs (capital, risk, control) → match each structure to those needs → recommend one with justification.
- Common pitfalls: forgetting unlimited vs limited liability; ignoring the factors (capital, control, continuity); mixing up “public sector” and “public limited company” (they are different!).
Self-test checklist
Essay practice: “Evaluate whether a business should always convert from a partnership to a private limited company as it grows.” (25 marks)