Imran and Khaled plan to set up a car repair business. They are unsure about whether to form a partnership or a private limited company.

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

1. [4] (a) One mark for stating each factor plus one mark for explaining each of two factors
2. Market (1) close to potential customers (1) so that customers will not have to travel far (1) increase their sales
3. Cost of premises (1) e.g. affordable rent (1) to reduce the cost of setting up the business (1)
4. Ease of access (1)so that customers and suppliers can easily reach the business (1)
5. Availability of power/communication infrastructure (1) so that machinery can be used and communication to and from customers is easy
6. Competition (1) may be difficult to break into a new market where there is an established car repair business (1)
7. Supply of labour (1) where there employees with the necessary skills (1)
8. Security (1) better to locate in an area with lower theft/vandalism (1)
9. Demand (1) is it a developed area (1) where there are many car owners (1)
10. Nearness to suppliers (1) for tools (1) cut transport costs
11. Accept any other relevant point
12. [2] (b) (i) One mark for each of two characteristics stated
13. Limited liability
14. Continuity of existence
15. Legally a separate being
16. Owned by shareholders
17. Shares can only be transferred with the consent of other shareholders
18. Cannot appeal to public for capital/not listed on stock exchange
19. Minimum of two shareholders
20. Controlled by board of directors
21. Needs to be registered with the Registrar of Companies
22. In private sector
23. Incorporated
24. Shares sold to family/often a family business
25. Has Ltd/Pvt at end of name
26. Accept any other relevant point
27. [4] (ii) Any two risks explained × 2 marks each
28. Unlimited liability (1) means that they could lose all their personal assets if the business fails (1)
29. Disagreements can take place (1) which can lead to the partnership breaking up (1)
30. One partner can bind the partnership to decisions (1) e.g. responsible for debts (1)
31. Number of partners is restricted (1) limiting ability to raise capital (1)
32. Partnership is not a legal entity (1) so each partner is fully responsible legally (1)
33. There is no continuity (1) so if a partner dies or leaves, a new Deed of Partnership may be needed/partnership is dissolved (1)
34. Not enough capital (1) to expand the business (1)
35. Sleeping partners (1) less active/not pulling their weight (1)
36. Accept any other relevant point
37. [2] (c) (i) Any two points
38. Helps to increase sales (1) so increasing profits (1)
39. Can be informative (1) and advises the consumers that products are available (1)
40. Can be persuasive (1) and try to attract consumers (1) to buy products (1)
41. To remind consumers (1) that their products still exist (1)
42. To create a brand name/image (1) creating brand loyalty (1)
43. Accept any other relevant point
44. [2] (ii) One mark for each of two relevant media stated
45. Newspaper
46. Leaflet/flyer
47. Word-of-mouth
48. Radio
49. Website/Internet
50. Posters/billboards/hoardings
51. Direct mail
52. Window displays
53. Telephone directory
54. Magazines
55. Cinema
56. Note: Television is not considered relevant for this business.
57. [6] (d) Level 2 (4-6 marks) Has discussed the statement and evaluated the degree of importance (The argument can be one-sided and awarded the maximum marks)
58. Level 1 (1-3 marks) Has commented on the statement
59. Main risk categories are:
60. Fire and theft – to compensate business due to loss from fire and theft.
61. Employer liability – protects business against claims from employees who have been injured while working at the business.
62. Public liability – protects against claims from public due to negligence of business.
63. In many countries employer liability and public liability are compulsory by law.
64. Other types of insurance are not compulsory and Imran and Khaled must weigh the risks against the premium charged by the insurance company.
65. Accept any other relevant point.