IGCSE-OL - Bus - CH - 4 - Answers To CB Activities

Cambridge IGCSE and O Level Business Studies
4 Types of business organisation

Answers to Coursebook activities
Activity 4.1 (page 48)
Advantages and disadvantages of partnerships – shown below – to be put into context given in activity.
Advantages of partnership Disadvantages of partnership
•• Usually greater access to finance than •• Partners usually have unlimited liability for the debts
sole traders as there is more than one of the business. May have to use personal wealth to
person investing capital in the business. pay these if the partnership is unable to do so.
•• Decision-making is shared and can often •• Partners must share profits.
lead to better decisions. •• If a partner leaves then the business ceases to exist
•• Management and day-to-day running of and will need to be re-formed if other partners want to
the business are shared, which reduces continue trading.
the workload for individual owners. •• Business decisions are binding on all partners, even if
•• Easy to set up. Partners may sign a they don’t agree to them.
legal agreement known as a Deed of •• Often are fairly small businesses and, like sole
Partnership. traders, find it difficult to raise additional finance to
expand.

1 Both will have limited liability for any debts of the new company. They only risk losing the amount they
invest in the business and cannot be forced to sell personal belongings or use personal savings to finance
business debts.
2 Advantages: Chata and Juma will have the additional finance they need to finance expansion plans
without borrowing. This is a much cheaper source of finance as they do not have to pay interest or
repay the amount invested by Chata’s father and Juma’s sister. Converting the business will provide both
Chata and Juma with limited liability for business debts. As a partnership they have unlimited liability
for the debts of the business. They could be forced to use personal savings or sell personal belongings
to finance business debts. If the business becomes a private limited company then their liability will be
limited to the amount they invest in the business. Chata’s father or Juma’s sister might bring skills or
experience to the business that neither Chata nor Juma has. This could help the business to expand and
become more successful.
Disadvantages: A legal process is required when setting up a private limited company – cost involved.
End of year financial statements must be produced and submitted to the correct authorities. Chata and
Juma will have to share the profits of the business with other shareholders. They may no longer have
control over business decisions – new shareholders will be able to vote on major business decisions.

Student’s own answers.
Case study (page 51)

a Two or more businesses agree to work together on a project and set up a separate business for this
purpose.
b Risk for each business is reduced and costs are cut. Each business brings different expertise to a joint
venture. Market and product knowledge is shared.
© Cambridge University Press 2018 Chapter 4 Answers to Coursebook activities 1

c Yes, because Chery is a well-known car manufacturer in China so knows and understands the market.
Consumers know the Chery brand so will be more likely to buy products of joint venture, which
reduces JLR’s risk of failure. JLR’s costs of entering new market will be much lower than if it were to try
to enter market on its own. Chery has experience of manufacturing and marketing smaller cars than
JLR. No, because if Chery’s reputation were to be damaged because of something it did in China, e.g.
produced faulty cars, then this could also damage JLR’s reputation. Chery might learn from JLR how
to produce better, more luxurious cars, and in the future decide to produce its own luxury car in direct
competition with JLR in China and the rest of the world.
Test yourself (page 55)

1 One owner, makes all business decisions, keeps profit.
2 Owner(s) of the business are liable for business debts. Have to use personal savings or sell personal
belongings to settle the debts of the business.
3 Source of finance: each partner invests capital in the business. More skills and experience: each partner
brings their own skills and experience to the business – should improve effectiveness and efficiency.
4 Unincorporated businesses unlimited liability; incorporated businesses limited liability.
5 Ownership: private sector businesses owned by private individuals; public sector organisations owned
by state. Finance: private sector businesses financed by investment from private individuals and
external sources, e.g. borrowing; public sector organisations financed by taxes. Control: private sector
businesses controlled by private individuals; public sector organisations controlled by government or
government bodies.
6 Legal process in setting up a private limited company. Profits must be shared among all owners
(shareholders).
7 Articles of Association, Memorandum of Association.
8 Private limited companies cannot sell their shares to the general public; public limited companies can.
9 Less chance of business failure because the product and brand are well established. Franchisor often
provides advice and training to the franchisee as part of the franchise agreement. Franchisor finances
promotion of the brand through national advertising; checks quality of suppliers, so the franchisee is
guaranteed quality supplies.
10 Reduces risk for each business and cuts costs. Each business brings different expertise to a joint venture.
Market and product knowledge can be shared.
Exam-style practice questions (page 56)

1 a Owned by private individuals. Financed by private individuals or through borrowing. Controlled by
private individuals. Main objective to earn profit for owners. [2]
b Organisations that are financed and owned by the state and controlled by government. [2]
c Advantages: additional capital; share workload; more ideas; better range of skills. (1 mark per
advantage)
Disadvantages: unlimited liability; lack of business continuity; disagreements; share profits. (1 mark
per disadvantage) [Total: 4]
d Spreads risk (1): if the property renovation element of the business is not doing well they will still
earn revenue from property maintenance (1). Increased revenue/profit (1): entering a new segment
of the market increases the opportunity to increase sales (1). Economies of scale (1): as the business
grows they could benefit from bulk-buying discounts, etc. (1) [Total: 6]
e Explanation of the advantages of a private limited company, e.g. limited liability, access to more
capital from investors, continuity of business if one of the owners leaves/dies (2). Explanation of
the disadvantages, e.g. sharing profits with other owners, possible loss of control, legal formalities
in setting up a private limited company (2). Decision based on evaluation of the advantages/
disadvantages of a private limited company for An and Bo (2). [Total: 6]
2 a Limited liability and business continuity even if the owner leaves/dies. [2]
b Part of the economy that has businesses financed, owned and controlled by private individuals with
the main objective of earning profits. [2]
c Limited liability (1): owners/shareholders risk losing no more than their investment in the company
even if the business fails and has unpaid debts (1). Access to capital (1): a public limited company will
find it easier to raise capital through sale of shares to the general public (1). [Total: 4]
d Lack of sales in Country X: (1) might not be enough demand for road construction in Country X,
(1) Mactar might face too much competition in Country X from other construction companies.
(1) Benefits of entering new market: (1) Country Y’s government wants a new motorway to be
constructed, (1) increase Mactar’s revenue and profits. (1) [Total: 6]
e Yes, because: Mactar has no experience of Country Y (1). Joint venture will make it easier to enter the
new market (1), KC Diggers knows the market in Country Y (1), already established business with
a brand image in the country (1). Mactar can benefit from KC Diggers’s experience and expertise
(1). KC Diggers owns machinery Mactar will need for construction of the motorway – reduces costs
(1). Government of Country Y might look more favourably on a joint venture because KC Diggers is
based in Country Y (1).
No, because: Mactar will have to share revenue and profits with KC Diggers (1). Does KC Diggers
have a good reputation in Country Y (1)? How might the reputation of KC Diggers affect Mactar’s
reputation in Country Y (1)? (Maximum 5 for reasons) Statement for or against joint venture based
on points discussed (1). [Total: 6]

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Cambridge IGCSE and O Level Business Studies

4 Types of business organisation

Activity 4.2 (page 50)

Activity 4.3 (page 51)

Case study (page 51)

© Cambridge University Press 2018 Chapter 4 Answers to Coursebook activities 1

Test yourself (page 55)

Exam-style practice questions (page 56)

© Cambridge University Press 2018 Chapter 4 Answers to Coursebook activities 3

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