16 cuapTer 2 In this chapter, you will earn: A. Private Enterprises and Public Enterprises B. Private Enterprises C. Public Enterprises D. Multinational Corporations (MNCs) in Hong Kong A | Private Enterprises and Public Enterprises In terms of ownership, businesses can be divided into two types: + Private enterprises (also known as private sector, #A 2 businesses franchisee to operate a business. Set up by legislation to provide | under the name of franchisor eee ‘© Share of risk and capital | Franchisors: "le Subsidised by the | among partners |e Less amount of capital for fast government |e Synergetic effect business expansion ‘© More updated information |* Complementary skills and Regular royalty received from from the government for Knowledge among partners _ franchisees operation planning | Franchisees: Starting a business with limited capital and experience © Operational support from franchisor | © Customer base being guaranteed * Conflict and coordination | Franchisors: i Inefficient operation driven | problem |+ Possibility of business reputation _by the lack of competition * Collective responsibility being adversely affected by | and profit motive ___ malpractice of franchisees ‘+ The government bearing * Difficult to achieve standardised operation loss services | | Franchisees: | | Share of profit with the franchisor + Inflexible business operationsFORMS OF BUSINESS OWNERSHIP 29 @2A Multiple Choices — choose she most appropriate answer, Concept Which of the following descriptions about sole proprietorship is correct? A. Itenjoys a lower tax rate than general partnership. B. It needs to disclose its financial statements to the public €. The business will cease upon the death, retirement, bankruptcy and legally incompetence of the owner. D. Businesses can only be engaged in primary and secondary production. 2. Ifa sole proprietorship fails, the owner should, A. apply for government support. B. _ declare bankrupt if his personal assets is insufficient to pay off the business debts. ©. convert the business into a limited company. D. disclose his personal financial position to the general pubic. 3 In general, partnership is formed by partners. Except for professionals, if the number of owners is more than 20, it must. ‘A. atleast 2 ...... provide more than one professional services B. 2-20 form a private limited company c. 2-50 announce to the public D. 2-100 have at least one partner to assume unlimited liability 4. Compared with general partnership, limited partnership needs not disclose the financial statements publicly is subject to a higher profits tax rate. can be listed on the stock exchange. must have at least one partner bears unlimited liability. The remaining owners can be limited partners. PRPP 5. Which of the following is the function of general partners? ‘A. They increase publicity of the business. B. They are responsible for daily business operation. ©. They monitor the performance of other types of partners. D. They limit the liability of the business.30 cHarrer 2 6. Limited partners ___but ‘A. cannot participate in daily business operations......have a voting right in major business decisions B. cannot take over business assets ...... can share the business profit €. need not disclose their personal wealth to other partners ......should not have other business relationship D. isnot an owner will share the profit or loss of the partnership 7. Which of the following is the main purpose of admitting nominal partners? ‘A. to increase business publicity B. to increase capital ©. to deduct tax D. _torestructure the whole business 8 Which of the following is/are the contribution(s) of nominal partners? (1) enhance business reputation (2) provide professional advice (3) _ strengthen business connections A. (1)only B. (3) only . (2)and (3) only D. (1), (2) and (3) 9, Which of the following are the differences between general partners and nominal partners? (1) Revealing partners’ identity (2) Business ownership (3) Participation in daily business operation A. (1) and (2) only B. (1) and(3) only ©. (2)and (3) only D. (1), (2)and (3) 10. Which of the following is correct? Participation in daily | Revealing partners’ | casa contribution business operation identity (1) [General partner * v v (2) [Limited v v x (3) [Nominal partner ae v x A. Q2)only B. (3)only ©. (1)and (2) only D.(1)and (3) only1. 12. 13. 4. 15. 16. 17. Fortis OF Business Ownensiie 34 Partnership cannot admit partners with a view to raising capital A. general B. limited ©. unlimited D. nominal Which of the following is not an advantage of forming a partnership? ‘A. Every partner can perform duty according to their competence. B. _ If one of the partners retires or dies, the other partners can continue the business by forming a new partnership. C. All partners enjoy limited liability D. _Ithas a lower tax rate than that of a limited company. ‘Which of the following is an advantage of partnership over sole proprietorship? ‘A. _ lower set-up cost B. lower profits tax rate C. owner being limited liability D. wider source of capital Compared with general partnership, sole proprietorship ‘A. bears unlimited liability B. _ has less flexibility in decision making C. has narrower sources of capital D. enjoys a lower profits tax rate Compared with partnership, limited company A. _ is subject to lower profits tax rate B, is a separate legal entity C. needs to disclose their financial information to the public D. will be dissolved upon the death of a shareholder Many partnerships choose to convert to private limited companies because of (1) awider source of capital (2) no need to publish their financial statements in a newspaper (3) _ the lower profits tax rate A. (1)only B. (1) and (2) only ¢. (2)and (3) only D. (1), (2) and (2) ‘The word ‘limited’ in ‘limited company’ means that A. the liability of each shareholder is limited B. the number of shareholders is limited C. the number of shares held by each shareholder is limited D. the amount of capital is limited92 cuapren > 18. 19. Which of the following is a correct description about the difference between private limited companies and public limited companies? |__ Private limited cor 2-100 I At least 1 (1) [Number of shareholders | (2) Disclosure of financial To the Audit Commission. information (a8) Cy (aes Need the consent of all shareholders To general public Freely traded (2) only (3) only (1) and (2) only (1) and (3) only pomp The advantage of being a shareholder of a private limited company rather than that of a public limited company is that ‘A. financial statements need not be disclosed to the public. B. transfer of ownership is restricted to avoid hostile takeover. C. shareholders can sue the company. D. shareholders can take part in the daily business operation. Which of the consequences ocour if a publioly-listed company becomes a private limited company? (1) loss of reputation and publicity (2) more difficult to raise capital (3) no need to disclose financial information to the general public A. (1) and (2) only B. (1)and(3) only ©. (2)and (3) only D. (1), (2) and (3) Companies applying for listing must be ‘A. _ sole proprietorships. B. _ partnerships. C. private limited companies D. public limited companies. Which of the following statements about listed companies and non-listed companies is not correct? ‘A. They are both public limited companies. B. Both of their shares can be freely traded to outsiders. C. Shares of listed companies can be freely traded in the stock exchange, whereas the shares of non-listed company can be freely traded in the public market except the stock exchange. D. Listed companies are listed in the main board, whereas non-listed companies are listed in growth enterprise market,2. Which owners of the following forms of business bear limited liability? (1) partnership (2) listed company (3) private limited company A. (t)only B. (1) and (3) only Cc. (2)and (3) only D. (1), (2)and (3) Which of the following are correct? Fonlis OF Busiess/Owhiensrie| 330) ae i Sole proprietorship Partnership Limited companies Public: No upper limit a) Number otowmer | 1 atleast 2 See (2) | Liabitity of owner Unlimited —_| Unlimited for general Limited partnership (2) [Separate legal entity x x 7 A. (1) and (2) only B. (1) and (3) only ©. (2)and(3) only D. (1), (2)and (3) Which of the following statements about the source of capital are correct? 1) (2) 8 Sole proprietor has the least sources of capital. Partnership needs the consent of all partners to raise capital. A. (1) and (2) only B. (1)and(3) only ¢. (2)and(3) only D. (1), (2) and (3) Which of the following statements is correct? Private limited company needs the consent of all shareholders to raise capital. ‘A. Sole proprietor is a separate legal entity. B. All partners in a general partnership bear unlimited liability C. Allpartners in a limited partnership can freely transfer their ownership to the remaining partners. D. All shareholders of a limited company have voting rights in the board of directors’ meeting, Which of the following about a joint venture is correct? ‘A. Itcan be terminated by agreement. B. itis. separate legal entity C. It must be registered as a limited company. D. itis only applicable to retail and catering businesses.34 Chapter 2 28. Which of the following is/are the advantage(s) of a joint venture? (1) _ share of capital and risks among the businesses involved (2) collective responsibility among the businesses involved (3) to increase the competitiveness in the industry A. (1)only B. (1) and (3) only ©. (2) and (3) only D. (1), (2)and (3) 29. Which of the following is a characteristic of a franchised business? A. Franchisees are guaranteed a minimum return B. Franchisees can determine its own sales strategy. C. _ Franchisors provide assistance to franchisees on business management and operation, D. _ Franchisors pay franchise fee to franchisees regularly. 30. Which of the following is the main advantage of granting a franchise? ‘A. Franchisors retain all profits from the business. B. _Franchisors can have updated market information from franchisees. C. Marketing assistance is given D. Business expansion is faster. 31. Which of the following is the advantage of joining a franchise? ‘A. operations under the authorization of franchisor B. full control over its promotion strategies . giving advice to franchisor D. quick business set-up 32. Different from private enterprises, public enterprises (1) are non-profit making (2) are owned by the government (3) consider public interest A. (2)only B. (1) and (2) only ©. (2)and (3) only D. (1), (2)and (3) 33, Which of the following statements about a public corporation is not correct? ‘A. Itis owned by the government. B. The government is involved in its daily operations. . It mainly provides public services, D. Its losses are borne by tax payers.FORMS OF BUSINESS OWNERSHIP 35 34, Which of the following forms of business ownership requires the owner(s) to have the most participation in deily business operation? A. Sole proprietorship B. Partnership C. Limited company D. Public corporation 35, Which of the following statements about a multinational company is correct? A. _Itis jointly owned by two or more firms. B. _ Itis owned by the government to provide public services. . _Itoperates in many countries with its headquarter in one country. D. _ Ithas many overseas suppliers. 36. Which of the following is not a feature of the Hong Kong economy to attract multinational corporations to have branches in Hong Kong? A. Free flow of capital B. Low sales tax rate €. Strict legal requirement to prevent fraud D. Near the Mainland Application 37. Which of the following statements about the form of business shown ‘on the right hand side is correct? ‘A. _ tis required to publish the financial statements, in a newspaper, B. tis subject to the highest tax rate C. The owner is personally liable for the debts of the business if it fails D. _ tis a separate legal entity. 38, Which of the following is an advantage of sole proprietorships in Hong Kong? Decision making is flexible and timely. Owners need not contribute to the Mandatory Provident Fund themselves. Owners enjoy lower profits tax rate than other forms of business ownership. Owners enjoy limited liability. pop> 38, Which of the following is the main reason for sole proprietorship being the most common form of business ownership in Hong Kong? Many friends and relatives will help the owner to operate the business. More profit will be made. Set-up cost is low. ‘Owners are highly experienced pomp36 | cuaprer 2 40. Davy and Jones form a general partnership. Which of the following statements is correct? ‘A. Itisharder to set up than a private limited company. B. Tax rate is lower than that of sole proprietorships. . Only one of them is responsible for making business decisions. D. They are responsible for daily business operation. 41, A,B &C, Solicitors is formed by three partners. Only A bears unlimited liability. B will not participate in daily business operation and is the only one not to contribute any capital. He will not share the profits and losses of the partnership but will receive partner salary, Which of the following statements about the type of each partner is correct? a 5 c A Nominal [Limited General B. Limited [Nominal "General c. [General [Nominal | Limited D. | General | Employee | Nominal 42, Ms Yip and Mr Yiu form a trading firm. In recent years, the firm has not got enough ‘working capital. In order to protect their personal assets once the firm is liquidated, they decide to sell the business. This trading firm is a ‘A. sole proprietorship B. general partnership ©. limited partnership D. private limited company 43, Maggie, Nancy and Leo form a business. When any one withdraws, the business is deemed to be closed. The form of business they operate is a A. sole proprietorship B. partnership ©. private limited company D. public limited company 44, Albert, Bonnie and Calvin form a business. When the business closes down, Albert has to repay all the remaining liabilities whereas Bonnie and Calvin are not liable for the amount beyond their investments. The business is a general partnership limited partnership private limited company public limited company pompfoe aelaeSat Ina 45, Abraham operates a travel agency. He runs the business by partnership instead of sole proprietorship. Which of the following is the possible reason? to have wider sources of capital lw speed up decision meking to receive a fixed income regularly no need to share profit pop> 46, Isabella decides to start a business. She prefers to form a partnership with her friends rather than setting up a limited company on her own, Which of the following are the possible reasons? (1) _ share of risk (2) more source of capital (8) diversified knowledge trom her triends A. (1)and (2) only B. (1) and (3) only €. (2) and (3) only D. (1), (2)and (3) 47. David and Catherine are couples, They form a private limited company. Which of the following statements is correct? ‘A. Only one of them enjoys limited liability. B. Business decisions made by any one are legally binding for another. C. David can freely transfer his ownership to his son without an approval of Catherine. D. The business still exists even though Catherine sells her share to his son successfully 48. Tom is a co-owner of a firm. He bears limited liability and cannot transfer his ownership without the consent of all owners. The firm needs nat disclose its financial information to the public. This firm is @ ‘A. _ sole proprietorship. B. general partnership. C. private limited company. D. public limited company. The following information is about two organisations: A B Objective to make profit to promote social weltbeing | Source of Capital _| Wom Issue of shares to general public |_from the government Board of directors —_| elected by shareholders appointed by the government | Aisa and Bisa A. _ private limited company........ public limited company B. public limited company ........ private limited company ©. public limited company ........ public corporation D. public corporation public limited company38 Cuarter 2 50. The following information is about two enterprises’ Roe ee Y [Number of owner(s) | meron t i ‘Source of capital from the owners from issue of shares but not in the public. Legal identity” not a legal entity a legal entity | Xisa and Yisa A. private limited company. public limited company B. public limited company public corporation €. _ sole proprietorship partnership D. _ partnership private limited company BI. Which of the following is/are joint venture(s)? (1) An overseas firm cooperates with a local firm to form a new business for a new business line in another country. (2) Allocal firm merges with an overseas firm. (3) Two or more partners in a business form another competing business, A. (t)only B. (2)only c. (3)only D. (1), (2)and (3) 52. The following are the business cards from different firms in Hong Kong a) (2) Isabella, CPA vor sees Ropresnstve kabel an Jason Coneutancy arden Bank 00 Shain Rod $00 Gergen Roos ta yee Err awa prsen.com (3) (4) Stay Putt Wesereyoy, Director ‘Mindy Ema stoyput@ohestoustercom:tk ogy Direct ie! 852° 2123 4567 Donald chan enertNaneper- Grea Chia Begon chostouster Ltd on ie tka House contruction tt ata i oa oa Emadonacomtaycomp Which of the following statements is NOT correct? Garden Bank must be a limited company. Popp Mickey House Construction Ltd may be a Isabella and Jason Consultancy is a joint venture, Ghostbuster Ltd is subject to the same profits tax rate as Garden Bank. multinational corporationFORMS OF BUSINESS OWNERSHIP 39 53. (For Advanced Study) Which of the following employees is the most likely to be employed in the public sector in Hong Kong? A. Awholesaler B. Anurse C. Apainter D. Ataxi driver 54. The Airport Authority Hong Kong ( #508 FBI ) is a ‘A. _ sole proprietorship B. private limited company ©. public limited company D. public corporation §5. Which of the following is NOT a public corporation? A. Kowloon Motor Bus B. Airport Authority C. Radio Television Hong Kong (RTHK, #386 & ) D. Hong Kong Productivity Council ( #854: 118 ) 56. The firm shown on the right hand side is a ‘A. _ sole proprietorship B. private limited company ©. public limited company D. public corporation In Hong Kong, McDonald's is a ‘A. multinational corporation B. small and medium enterprise ©. listed company D. public corporation Karl and Matthew decide to set up an audit firm, Which form of business ownership should they adopt? A. Sole proprietorship B. Partnership . Private limited company D. Public corporation40.) cuaprer 2 Case Study Refer to the following case for Questions 59 and 60: Chan, Lee, Cheung, Wong and | lo operate an auciit firm. 59. The number of owners of this firm should be 2-10. 2-50. ho lower limit. no upper limit. Pere 60. Which form(s) of business can be formed by Chan, Lee, Cheung, Wong and Ho? (1) Sole proprietorship (2) Limited partnership (3) Limited company A. (2)only B. (1)and (2) only . (1) and (3) only D. (2) and (3) only Refer to the following case for Questions 61 — 65: Cats Lover is jointly owned by Wong, Wing and Kin. Only Kin bears unlimited liability and participates in running the business to provide pets care services. Wong does not contribute capital. He reveals his identity to the public but not participates in daily business operation, Recently, they decide to form a new business with Yan's Pet Food which is solely owned by Isabella. The new company, Happy Pets Ltd, cannot raise capital by issue of shares to the general public. G1. Which of the following is correct? Wong Wing Kin A. Limited partner_[~ General partner_| Nominal partner B. Nominal partner [General partner_| Limited pariner c. Nominal partner | Limited partner | General partner_ D. Limited partner_| General pariner_| Nominal partner | 62. Which type of production is involved in Cats Lover? A. Direct B. Primary ©. Secondary D. TertiaryFORMS OF BUSINESS OWNERSHIP 41 63, The number of partners in Cats Lover can be A. More than 2 B. 2-20 c. 2-50 D. More than 100 G4, Which of the following forms of business are correct? Cats Lover Yan's Pet Food Happy Pets Ltd A Limited partnership Sole proprietorship __| Private limited company B. General partnership | Sole proprietorship _| Public limited company Cl Limited partnership | General parinership _| Public limited company D. General partnership Limited partnership | Private limited company 65. Which of the following statements about Happy Pets Ltd are correct? (1) Itneed not disclose financial information to the general public. (2) Its profits tax rate is higher than those of Cats Lover and Yan's Pet Food, (3) _ It is easier to form than Cats Lover and Yan's Pet Food. A. (1)and (2) only B. (1)and (3) only . (2)and (3) only D. (1), @) and @) @ 2B Questions Level 1 2A Rose is a salesperson of a flower shop. She believes she can run her own business successfully, although she has no experience of running a business. She decides to use her few savings and borrow a bank loan to set up a flower wholesale business. Rose's uncle is a retired businessman. He knows nothing about flowers. He is friendly but rather bossy as he always thinks he knows best. He would like to become a. partner of Rose’s business and ask Rose not to borrow a bank loan. State two advantages and two disadvantages when Rose sets up a partnership with her uncle. 22 Roy, Sarah and Tim jointly set up a business in the form of a limited partnership. Only Roy and Tim contribute capital. Sarah and Tim are not involved in the daily business operations. If the partnership is liquidated, only Roy has to use his personal assets to pay the outstanding debts of the partnership. (a) _ Identify the types of each partner. (b) State two contributions of nominal partners to a partnership.42 Capter 2 23. Explain the aifference between a partnership and a private limited company relating to: fa) Number of owners, {b) Management of business (e) Liability 2.4 What are the reasons for a listed company to go private? State two. 2.5 Hillary is a sole owner selling low-priced household goods. Recently, she wants to change the form of business ownership of the firm. She invites two friends to invest in and join the business as owners. All owners will have limited liability for the firm. Their ownership cannot be freely transferred, (a) According to the above information, which form of business ownership will Hillary convert to? (b) Apart from the restriction in ownership transfer, suggest two other disadvantages for the form of business ownership mentioned in (a), as compared to a sole proprietorship. 2.8 ABC Construction Company decides to form a joint venture with DEF Interior Design Company for a big project. State two reaone why ABC Construction Company prefers to form a joint venture with DEF Interior Design Company instead of taking up the project on its own. 2.7 Some companies prefer not to form a joint venture with other companies. Briefly explain. Level 2 2.8 BBQ Ltdis a successful and profitable private limited company. Recently, it decides to further expand the business without going public. (a) State three similarities and three differences between private limited company and public limited company. () Briefly explain why BBQ Limited prefers to be a private limited company. {c) Suggest one method for business expansion of BBQ Ltd. (@) Apart from raising capital, state one advantage for a private limited company to go public.FORMS OF BUSINESS OWNERSHIP 43 2.9 Donald is the sole proprietor of a bakery. He decides to expand the business by ‘converting it into a partnership. He invites his friends, Daisy and Mickey to join the new business. However, Daisy recommends forming a private limited company. She said, ‘ita private limited company is formed, we can further expand the business by issue of shares to other parties when we all agree." On the other hand, Mickey recommends forming a franchised business for faster business expansion. (a) Explain the type of production involved in the bakery. (b) State two benefits and drawbacks if the business is converted into a private limited company rather than a partnership. (c) Explain two problems that the business may face if itis converted into a franchised business. (@) Suggest one measure the business can adopt to solve the problems in answer to (c). (©) Suggest two criteria to choose a franchisor 2.10 Tokyo Lid is a multinational corporation based in Japan. It operates many Japanese restaurants in Hong Kong. Food are imported from either its own farms in Germany or its own factory in Japan (a) What is a multinational corporation? Briefly explain. (b) Will Hong Kong economy benefit from multinational corporations? Briefly explain. (c) Should Tokyo Ltd operate its restaurants as franchises? Briefly explain.