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IB Business Management SL 1.2.2 Main for Profit Organizations Questions

Practise comparing sole traders, partnerships, and limited companies by ownership, liability, finance, and stakeholder consequences for IB Business Management SL.

Syllabus
First assessment 2024
Course
Business management SL
Level
SL

Exam points

  • Identify ownership, liability, legal continuity and share-sale features of sole traders, partnerships and limited companies.
  • Identify benefits and costs of incorporation in terms of limited liability, share capital, continuity and profit sharing.
  • Describe a public limited company disadvantage through reporting costs, public disclosure or takeover risk.
  • Explain legal-structure benefits and drawbacks using the case business’s control, financing needs and exposure of personal assets.
  • Calculate a combined ownership percentage from the shareholders’ individual share counts.
  • Use changes in shareholding percentages to explain who gains or loses control, rather than only describing the figures.
  • Determine how many additional shares are needed to move from a 50% holding to majority control.

IB Business Management SL 1.2.2 Main for Profit Organizations Questions question 1

[Maximum number: 2]

Tijeras (TJ)

Tijeras (TJ), a private limited company, manufactures surgical scissors. It has four shareholders and operates one factory in Peru. TJ sells in Central American and South American markets. Its sales have grown for the last 10 years, which has led to both economies of scale and diseconomies of scale.

The chief operating officer (COO) analysed the situation. He discovered that:
- current work areas are overcrowded
- workers are specializing more than in previous years
- maintenance costs are increasing
- the firm now buys raw materials in bulk.

The market for surgical equipment, including scissors, in the United States (US) is large and highly competitive. Recently, some hospitals in the US purchased TJ's scissors.

Table 3: Selected financial information for TJ on 31 May 2021 and 2022 and for the years ending 31 May 2021 and 2022

Table 3: Selected financial information for TJ on 31 May 2021 and 2022 and for the years ending 31 May 2021 and 2022

The COO determined that TJ needed more manufacturing capacity and put forward two options:
- Option 1: Keep the current factory in Peru and build a second one in Mexico, closer to the North American market. TJ's bank has agreed to provide a long-term loan to finance the new factory.
- Option 2: Build a new factory that is large enough for all of TJ's manufacturing-capacity needs and sell the old factory for $400000\$400000. This new factory cannot be financed solely with external borrowing.

Table 4: Forecasted costs of Option 1 and Option 2

Table 4: Forecasted costs of Option 1 and Option 2

State two features of a private limited company.

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