The diagram shows the ownership structure of Rojaz Furniture Ltd, a small company making desks for home offices. Rojaz has received an order from a new mark...
Question 1 Report
The diagram shows the ownership structure of Rojaz Furniture Ltd, a small company making desks for home offices. Rojaz has received an order from a new market and needs to recruit two staff for production. The founder wants to keep most shares but is considering selling a small number to a former colleague. The company is not quoted on a stock exchange. Use Fig. 1 when selecting your answer about the type of organisation.
(a) What is meant by the word limited in the name Rojaz Furniture Ltd? [1]
(b) State three characteristics of a private limited company. [3]
(c) Analyse why Rojaz Furniture Ltd may be more suitable than a partnership for this expansion. [4]
Answer Details
(a) In the name Rojaz Furniture Ltd, limited means the owners’ liability for business debts is limited to their investment or the value of their shares [1 mark].
(b) A private limited company is owned by shareholders [1], has a separate legal identity [1], and cannot sell shares to the general public [1]. Shareholders have limited liability and the business uses Ltd in its name. [3 marks]
(c) Limited liability protects Maya’s personal assets if the new order fails or creates debts [1]. Selling shares to the colleague can raise finance for staff or materials without borrowing [1]. The company continues to exist if an owner leaves, which can give suppliers confidence [1]. However, Maya may lose some control and company reporting requirements add cost. It is most suitable if expansion needs finance and lower personal risk [1]. [4 marks]
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