Tahir has been employed as a dentist for five years. He has recently been approached by Ayesha, a friend, who thought it would be a good idea for them to form a business partnership.

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. 2(a) 1 Tertiary / direct service
2. 2(b) 3 Owners are partners
3. Formed by a deed of partnership/partnership agreement
4. Minimum of 2 owners/more than one owner
5. Between 2 to 20 owners/partners
6. Decision making by partners
7. Capital provided by partners
8. Unlimited liability
9. Profits/losses shared
10. No legal existence/no legal entity
11. Privacy of accounts
12. Responsibilities/tasks shared
13. 2(c) 3 Yes - It is going to operate as a small business / only two partners (1) so it will be still easy to control (1) it is relatively easy to set up (1) there will be increased capital (1) compared to being a sole trader (1) each partner can contribute their skills/knowledge/specialise (1) sharing responsibilities (1) sharing ideas (1) shared discussion (1) shared risks / shared losses (1) Tahir can take time off as he can be covered by Ayesha (1)
14. No - Tahir will longer be his own boss (1) he will have to share profits (1) decisions may take longer (1) there can be disagreements (1) can hinder progress of the partnership (1) decisions taken by a partner will be binding on the other partner (1) there will still be unlimited liability (1) personal possessions can be taken (1) can lead to debts (1) We are not told what Ayesha's skills are (1) she may not be qualified (1) private limited company would be better (1) owners would have limited liability (1) personal possessions not at risk if the business is unsuccessful (1)
15. 2(d) 8 Level 3 (7-8 marks): The candidate is able to offer a thorough evaluation of whether Tahir and Ayesha should be using personal savings or a long-term loan store cards to buy dental equipment.
16. Level 2 (5-6 marks): Candidate offers a satisfactory analysis of the advantages and/or disadvantages of using personal savings and/or long-term loan to buy dental equipment without evaluation.
17. Level 1 (1-4 marks): Candidate demonstrates some knowledge and understanding, with application to buying dental equipment, by personal savings and long-term loan.
18. Personal savings: The partners will not have to spend time trying to secure other sources of finance so able to buy the dental equipment immediately; They will be able to save money with interest paid so there will not be any interest on money borrowed; After using their savings, they might not have enough money left for running the partnership; There is the opportunity cost of putting their savings into buying dental equipment rather than a more profitable activity
19. Long-term loan: Will receive the full cost of the dental equipment so do not have to use personal savings; The partners can pay back over a long period of time so that repayments can be spread; Interest has to be added so it is more costly than personal savings; Risk of losing collateral if loan is not paid back so assets could be taken that the partners need to continue in business
20. Evaluation: Personal saving is the faster and easier way to secure funding to buy the dental equipment. The partners do not have to go through a lengthy application process for a loan. However, we are not told how much the dental equipment is going to cost or more importantly whether the partners have sufficient personal savings to afford it. Given the absence of this information, it might be better for the partners to consider a long-term loan.