Cambridge IGCSE™ and O Level Business Studies

Section 1: Understanding business activity Chapter 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 Student’s 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 Student’s own answer.

Activity 4.3
a It protects the individual shareholder’s private assets if the business fails: he/she will only
lose their investment in the company’s 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™ and O Level Business Studies Online Teacher Guide, Hodder & Stoughton Limited 1
© Karen Borrington and Peter Stimpson 2018