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Cambridge IGCSE Business Studies 4th edition Hodder & Stoughton Ltd 2013 1
4 Types of business organisation
Answers to activities
Activity 4.1
a) Advantages: independence able to work for himself and make own decisions;
may become very successful as this is an expanding industry.
Disadvantages: less security than working for a large business; no experience of
owning/operating a business so this increases the risk of failure; putting his small
savings at risk and all other assets if it fails.
b) Students own answer.
c) Advantages: increased capital; uncle has business experience.
Disadvantages: uncle might insist on some management role but he knows
nothing about computers; Amin may lose the independence he was hoping for.
Activity 4.2
a) Advantages: limited liability there is still a risk of business failure even though
it seems to have been successful; additional capital from sale of shares to
friends needed for new premises.
Disadvantages: legal formalities and some disclosure of accounts: Amin might
not want his uncle to find out how much profit he is making! Friends may have
some control over the business depending on number of shares bought: Amin
will have to explain his business decisions to them.
b) Students own answer.
Activity 4.3
a) It protects the individual shareholders private assets if the business fails: he/she
will only lose their investment in the companys shares.
b) Makes it easier: potential investors will be more likely to buy shares
knowing that their liability, in the event of business failure, is limited to their
investment.
c) Sole traders often value their independence, ability to take their own quick
decisions and being able to keep all profits: these advantages will be lost by
taking on partners.
d) They wanted to get back full control of their company and decision making and
objective setting within it; they did not want to take the risk of shares being
bought by another company and being taken over; they wanted less disclosure
of the accounts.
Activity 4.4
a) When businesses agree to create a new business together to achieve a particular
objective, for example, entering a new market.
b) Bharti Enterprises will know the Indian market, for example, consumer tastes
and local competitors.
There may also be legal constraints on foreign businesses setting up in the
Indian retail industry.
c) Lack of knowledge of local consumer tastes, market trends, legal restrictions and
local culture.
Distance from operations in other countries, for example, transport costs.
Cambridge IGCSE Business Studies 4th edition Hodder & Stoughton Ltd 2013 2
4 Types of business organisation
Cambridge IGCSE Business Studies 4th edition Hodder & Stoughton Ltd 2013 3