Analyse limited and unlimited liability by comparing separate legal identity, shareholder protection, personal assets, risk, finance and business ownership.
Sources for use with Section A
Extract A
What is Zwift?
Millions of people around the world enjoy cycling. However, the weather or road
conditions can sometimes make it difficult or even impossible to take part in this activity.
Zwift created a solution to this by introducing a virtual reality computer program, which
combines cycling with computer gaming. The cyclist rides their bicycle indoors while it is
attached to a fixed frame, so the bicycle does not actually move. This allows the cyclist to
watch their progress on a virtual road on a computer screen. People of all cycling abilities
can improve their fitness at the same time as enjoying social interaction with fellow
cyclists from around the world.
By paying Zwift a $10 fee every month to use the game, the cyclist’s efforts can be
displayed in a virtual world on the computer screen, complete with maps, roads,
landscapes and other riders to interact with.
Jon Mayfield and Eric Min, both keen cyclists, launched Zwift as a private limited
company in 2014, with an initial investment of $3m, followed by venture capital of $27m
in 2016. The statistics are certainly impressive. In October 2017, Zwift had more than
300,000 riders from over 150 countries. Between them they had collectively logged
218,128,291km. There are currently no direct competitors to Zwift and with several
additions to the game being planned its success looks set to continue.
Extract B
Selected financial information for Zwift for year ending 31 December 2017
| $ | |
|---|---|
| Revenue | 36\,000\,000 |
| Cost of sales | (21\,000\,000) |
| Gross profit | 15\,000\,000 |
Discuss the likely advantages for Zwift of having limited liability.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with
the general marking guidance. The indicative content below exemplifies some
of the points that candidates may make but this does not imply that any of
these must be included. Other relevant points must also be credited.
Knowledge, Application, Analysis, Evaluation – indicative content
•
Zwift is a private limited company, meaning it has limited liability
•
Limited liability means the owners of the business are only liable for
the money they have invested in the business
•
This means Jon Mayfield and Eric Min were able to take more risks
without the worry they may lose their personal possessions if the
venture failed
•
Zwift may have grown to have more than 300,000 customers in over
150 countries because the owners were more prepared to take the
risks
•
However, setting up Zwift so it has limited liability would have taken
longer and been more complicated than if Jon and Eric operated as a
partnership
•
With less concern over running up huge debts, if problems occur in
the future, Zwift may not be able to repay their creditors and could
go into liquidation
Level
Mark
Descriptor
0
No rewardable material.
1
1–2
Isolated elements of knowledge and understanding – recall based.
Weak or no relevant application to business examples.
Generic assertions may be presented.
2
3–5
Accurate knowledge and understanding.
Applied accurately to the business and its context.
Chains of reasoning are presented, showing cause(s) and/or
effect(s) but may be assertions or incomplete.
An attempt at an assessment is presented that is unbalanced and
unlikely to show the significance of competing arguments.
3
6–8
Accurate and thorough knowledge and understanding, supported
throughout by relevant and effective use of the business
behaviour/context.
Logical chains of reasoning, showing cause(s) and/or effect(s).
Assessment is balanced, well contextualised, using quantitative
and/or qualitative information, and shows an awareness of
competing arguments/factors.