Question 1: Choice of entity
1. For the following situations, applying what you have learnedabout sole traders, partnerships, limited partnerships, andcompanies consider the most appropriate organisational structurefor the enterprise. In each case give a reason, or reasons, asappropriate, to support your suggestion. Guidance: Your reasons foreach part of this question should include why one or more of theavailable options are excluded, as well as the reasons that supportyour suggested organisational structure.
(a) Raya, who works in a gym, occasionally sells to sportsmagazines articles she has written on new developments in personaltraining. (4 marks)
(b) Three friends start a café. All three will be active indecision making but a precise organisational structure is requiredfor operational practicality. The project involves a degree ofbusiness risk and they wish to protect their personal liability asmuch as possible. Some flexibility is also required as it isenvisaged their spouses will be added to the group over time astheir business expands. They do not require their participation inthe enterprise to be secret and are happy to get any publicityavailable. (10 marks)
(c) Dion is a scientist who has developed an enzyme that breaksdown plastic drink bottles. He wishes to patent and develop hisdiscovery. Iosefina, Rosa and Michelle are low profile venturecapital providers who are not technical experts in the scientificfield but have money to invest in high risk start-up businesseswhere successful development brings a high financial return. Theyagree to provide some funding for Dionâs project. They do not wantto take an active part in the business other than in providing themoney required and receiving a share of the anticipated profits. Ifthe project fails, Iosefina, Rosa and Michelle do not want anyfurther liability in addition to the money they have alreadyprovided. They also wish to keep their involvement in the projectsecret. (8 marks)
2. Explain two ways in which joint venturers could ensure theydo not form a partnership.
3. Compare the use of a partnership and a company as thebusiness form for SMEs when new capital is introduced.
Question 1: Choice of entity
1. For the following situations, applying what you have learnedabout sole traders, partnerships, limited partnerships, andcompanies consider the most appropriate organisational structurefor the enterprise. In each case give a reason, or reasons, asappropriate, to support your suggestion. Guidance: Your reasons foreach part of this question should include why one or more of theavailable options are excluded, as well as the reasons that supportyour suggested organisational structure.
(a) Raya, who works in a gym, occasionally sells to sportsmagazines articles she has written on new developments in personaltraining. (4 marks)
(b) Three friends start a café. All three will be active indecision making but a precise organisational structure is requiredfor operational practicality. The project involves a degree ofbusiness risk and they wish to protect their personal liability asmuch as possible. Some flexibility is also required as it isenvisaged their spouses will be added to the group over time astheir business expands. They do not require their participation inthe enterprise to be secret and are happy to get any publicityavailable. (10 marks)
(c) Dion is a scientist who has developed an enzyme that breaksdown plastic drink bottles. He wishes to patent and develop hisdiscovery. Iosefina, Rosa and Michelle are low profile venturecapital providers who are not technical experts in the scientificfield but have money to invest in high risk start-up businesseswhere successful development brings a high financial return. Theyagree to provide some funding for Dionâs project. They do not wantto take an active part in the business other than in providing themoney required and receiving a share of the anticipated profits. Ifthe project fails, Iosefina, Rosa and Michelle do not want anyfurther liability in addition to the money they have alreadyprovided. They also wish to keep their involvement in the projectsecret. (8 marks)
2. Explain two ways in which joint venturers could ensure theydo not form a partnership.
3. Compare the use of a partnership and a company as thebusiness form for SMEs when new capital is introduced.
