Chapter 09 Forms Of Business Ownership

9 Forms of business ownership

Chapter Nine

Forms of business ownership

Self-assessment Questions 9.1 The possible reasons include: 1) simple procedure for setting up the business; 2) small capital requirement; 3) business and financial conditions can be kept secret; 4) lower profits tax rate. (Any three of the above) 9.2 Yes. John is liable even though he has paid his share. Under Section 11 of the Partnership Ordinance, partners are jointly and severally liable for the debts. This means that each partner is fully liable, and the creditor can sue any one or all the partners for the debt. 9.3 False. A limited partnership must have at least one general partner with unlimited liability. Hence, the liability of a limited partnership is still unlimited. 9.4 Mary prefers a partnership to a sole proprietorship because 1)

She can have more capital for business expansion, as partners can contribute capital.

2)

She can have more partners to share the business management, and the scope of the division of labour will be wider.

3)

She can have partners to share risk, as loss can be shared among partners.

9.5 The first statement is false. A public company has the right to list its shares for public trading, but it may choose not to do so. The second statement is true. 9.6(a) John should start a partnership. He can then be a general partner and have the right to manage his business. 9.6(b) He should buy the shares of a certain listed company. Then, his liability will be limited. 9.7(a) John should buy debentures, as debentures usually carry a fixed rate of interest, which will provide a steady return. 9.7(b) John should buy ordinary shares, as he will get more dividends if the firm makes a lot of profits.

Multiple Choice Questions 1 6

D B

2 7

B A

2

The accounting firm consists of more than one owner, and it does not carry the word ‘limited’ at the end of the company name, so it should be a partnership.

New Introductory Economics 3rd Edition Suggested Solutions

3 8

C B

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4 9

B C

5 10

A B

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9 Forms of business ownership

3

Option (A) is wrong! In a limited partnership, there must be at least one general partner who has unlimited liability.

7

Option (D) is wrong! It is virtually impossible for a shareholder who owns 1% of the ordinary shares of a company to control the company.

9

The shares of a public corporation are 100% owned by the government. They are not freely transferable.

Short Questions 11(a)

Public corporation

11(b)

Two characteristics are: 1) wholly owned by the government but has an independent legal identity; 2) run on commercial principles, i.e. to make a profit.

11(c)

Autonomy: it will be able to make decisions and adapt to market changes quickly. Flexibility: it will be cost-conscious and motivated to reduce costs and improve efficiency.

12

Lawyers and dentists are not allowed to practise their business with limited liability. Yes for the rest.

Structured Essay Question 13(a)(i)

Sole proprietorship

13(a)(ii)

The reasons include: (1) Flexibility in decision-making (2) Little capital needed for starting business (3) Simple procedure for setting up the business (4) Business and financial conditions can be kept secret (5) Lower profits tax rate (Any three of the above)

13(b)

Three advantages are: (1) Limited liability (2) Wider source of capital for expansion (3) Lasting continuity (4) Greater efficiency in management (5) Shares easily transferable (Any three of the above)

New Introductory Economics 3rd Edition Suggested Solutions

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