WASSCE Business Management: Forms of business organisation
The form of a business decides who owns it, who takes the profit, who pays the debts, and whether the public can be invited to buy shares.
The idea
A sole proprietorship has one owner. That person keeps the profit, takes the losses, and can usually start with little formality. The owner and the business are the same person for debt, so liability is unlimited: private property can be used to pay business debts. Capital is limited to what the owner can raise. A partnership brings in two or more people under an agreement. They can raise more capital and share the work. In a general partnership the partners still have unlimited liability, and one partner can bind the others. Write down how profit is shared, or a quarrel becomes the answer the examiner is waiting for.
A limited company is a separate legal person. The owners, called shareholders, risk what they agreed to put in, and no more. That is limited liability. A private limited company does not invite the public to buy its shares. A public limited company may. Do not invent a minimum number of members. If a question asks for a number, use the number in the textbook for your sitting. The marks that do not move are liability, and whether the public can be invited to subscribe. A cooperative is owned by its members for a common benefit, and each member has one vote. A public corporation is set up by the state to provide a service. It is not a public limited company. The state owns it. Shareholders do not.
The Business Management tips guide sets out the papers, how to build an essay, and the mistakes that cost marks. WASSCE Business Management tips
What earns the marks
Name the form before you list advantages. Unlimited liability is the sole trader and the general partner. Limited liability is the company. A cooperative is not "a small company". A public corporation is not a public limited company: one is state owned, the other sells shares to the public. If you give an advantage, give the matching limit. Easy to start is one mark. Hard to raise large capital is the other half, when the question asks for both.
Practice questions
These are practice questions in the style of the paper, with a model answer and a mark scheme. They are not a promise of what your paper will ask.
1Question 1
4 marks
(a) State two features of a sole proprietorship. (2 marks)
(b) Explain limited liability. (2 marks)
Model answer
(a) It is owned by one person, and that person has unlimited liability for the debts.
(b) Limited liability means the owners of a company can lose only what they agreed to put into the business. Their private property is not used to pay the company's debts.
Mark scheme
One owner, or the owner keeps the profit1 mark
Unlimited liability, or a second correct feature such as easy formation or limited capital1 mark
Owners risk only the capital they agreed to contribute1 mark
Private property is protected, or the company is a separate legal person1 mark
2Question 2
4 marks
Distinguish between a private limited company and a public limited company. (4 marks)
Model answer
Both have limited liability and a separate legal existence. A private limited company does not invite the public to buy its shares. A public limited company may offer shares to the public.
Mark scheme
Both have limited liability or a separate legal existence1 mark
A private company does not offer shares to the public1 mark
A public company may offer shares to the public2 marks
3Question 3
2 marks
State two ways a cooperative society differs from a public corporation. (2 marks)
Model answer
A cooperative is owned by its members, who each have a vote. A public corporation is owned by the state and is set up to provide a public service.
Mark scheme
Ownership: members, against the state1 mark
A second difference, such as one member one vote, or the purpose of providing a state service1 mark
Practise Business Management with Anna
More questions on this topic are inside glearn, marked as you answer, with the reason written out. The first ones need no account.
No. The sole trader and the business are the same person for debt. Private property can be used to pay business debts. Limited liability belongs to the shareholders of a limited company.
What is the difference between a public corporation and a public limited company?+
A public corporation is owned by the state and set up to provide a service. A public limited company is owned by shareholders and may invite the public to buy shares. The word public does not mean the same thing in the two names. All WASSCE Business Management past questions