A private limited company wants to build and insure a factory.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [4] Limited liability (1) where liability for debts is limited to amount invested / no personal possessions can be taken (1)
2. [4] Separate legal entity (1) legally a separate being / a corporate body (1)
3. [4] Owned (1) by shareholders (1)
4. [4] Shareholders receive a dividend (1) on profits (1)
5. [4] Owned by private individuals (1) not the government (1)
6. [4] Minimum of 2 shareholders (1) no maximum or 50 (in some countries) (1)
7. [4] Cannot sell shares to the public (1) on the stock market/exchange / only to family or friends (1)
8. [4] Controlled/run/decide rules (1) by directors (1)
9. [4] No minimum share capital required (1) to start a company (1)
10. [4] Often a family business (1) been in the same family for generations / sell shares in the family (1)
11. [4] Regulated by Companies Acts (1) must register with the Registrar of Companies to operate (1)
12. [4] Continuity of existence (1) can be passed down to others/does not end on death (1)
13. [4] Shares not transferrable (1) without agreement of other shareholders (1)
14. [4] Accounts must be published (1) and available on request (1)
15. [4] Needs to apply for a trading certificate (1) before it can begin trading (1)
16. [4] Need for an AGM (1) required by law (1) where shareholders vote (1)
17. [2] Employer's liability / accidents/injuries to workers
18. [2] Public liability
19. [2] Premises / buildings / vandalism
20. [2] Theft / burglary
21. [2] Flood
22. [2] Storm / weather
23. [2] Consequential loss / business interruption
24. [2] Machinery / assets / damaged machinery / machinery breakdown
25. [2] Contents / stock
26. [2] Goods in transit
27. [2] Fidelity guarantee / employee fraud / theft by workers
28. [2] Key person / important person dies
29. [2] Natural disasters / earthquake
30. [2] Plate glass insurance
31. [6] Indemnity is when the insured is placed in the same position after a loss as before the loss with no profit made.
32. [6] The company can be compensated for the loss to repair the damage caused.
33. [6] The owner cannot claim back more than the damaged assets are worth; otherwise, the company could over-insure to gain money / make a profit from a loss.
34. [6] If the fire causes $70000 damage, the factory owner can claim back $70 000 so that no loss is made.
35. [6] Again, if the company under-insures the factory, for say $30 000 the owner cannot claim back the full amount – as shown by the average clause formula – where the company will have to contribute to any loss.
36. [6] If the company under-insures the factory, the company will have saved money by paying lower premiums, but it will result in the company not being able to recover its losses.
37. [6] Under contribution, if the factory is insured with more than one insurance company, each insurance company will share the payment of compensation e.g. if the factory owner has two fire insurance policies, the amount of compensation will be shared between the two insurers, that is, $35 000 each.
38. [6] Under subrogation, if a factory is burnt to the ground, the factory could become the property of the insurance company.
39. [6] Evaluation: The principle of indemnity is very important when making a claim so that the factory owner can start rebuilding the factory. If not, they could be worse off than six months previously and will have to borrow money to do so. With more borrowing and increased insurance premiums, the factory might not be rebuilt to start production again for a long time.