Forms of Business Ownership

Question 1

A sole proprietorship

(i) is solely owned by one person.
(ii) has limited liability.
(iii) has a low setup cost.

A. (i) only
B. (ii) only
C. (i) and (iii)
D. All of the above

Answer 1

Answer: C

Question 2

Which of the following statements about a partnership is false?
A. A partnership can have more than 20 partners.
B. All partners in a limited partnership have limited liability.
C. A limited partner is not involved in the planning and management of the business.
D. A general partner has unlimited liability.

Answer 2

Answer: B

Question 3

A public limited company
A. has no upper limit on the number of shareholders.
B. must have at least one shareholder.
C. can issue shares to the general public.
D. All of the above

Answer 3

Answer: D

Question 4

Which of the following are the advantages of a sole proprietorship?

(i) A sole proprietorship can raise capital by issuing shares to the general public.
(ii) The ownership of the business can easily be transferred.
(iii) The owner can easily monitor the whole production process and ensure a high quality standard.
(iv) A board of directors can be elected to run the business.

A. (i) and (ii)
B. (ii) and (iii)
C. (ii), (iii) and (iv)
D. All of the above

Answer 4

Answer: B

Question 5

Which of the following forms of business ownership is/are (a) legal entity(entities)?

(i) Sole proprietorship
(ii) Partnership
(iii) Private limited company
(iv) Public corporation

A. (i) and (ii)
B. (ii) and (iii)
C. (ii) and (iv)
D. (iii) and (iv)

Answer 5

Answer: D

Question 6

Which of the following statements about sole proprietorships is false?
A. A sole proprietorship enjoys a lower profit tax rate when compared with a limited company.
B. A sole proprietorship has limited liability, thus avoiding the loss of personal assets.
C. A sole proprietorship can easily transfer ownership of the business to others.
D. When compared with other forms of business ownership, it is relatively easy to set up a sole proprietorship.

Answer 6

Answer: B

Question 7

What are the characteristics of a limited company?

(i) Separation of ownership and management
(ii) Limited liability
(iii) Lack of continuity
(iv) No upper limit on shareholders

A. (i) and (ii)
B. (ii) and (iii)
C. (i), (ii) and (iv)
D. All of the above

Answer 7

Answer: A

Question 8

Which of the following statements about private limited companies is true?
A. A private limited company does not need to disclose its financial information to the public.
B. A private limited company can sell its shares to the public.
C. There is no upper limit on the number of shareholders in a private limited company.
D. A private limited company cannot invite new shareholders to join the business.

Answer 8

Answer: A

Question 9

The following is the information about two firms.

Firm X
Source of capital: Raised by issuing shares.
Legal identity: Not a legal entity
Number of owners : 15
Financial statements: Disclosure to public not required.

Firm Y
Source of capital: Provided by the owners only.
Legal identity: A legal entity
Number of owners: No upper limit
Financial statements: Disclosure to public required.

The forms of ownership of Firm X and Firm Y are __________ and __________, respectively.
A. partnership … private limited company
B. public limited company … private limited company
C. private limited company … public limited company
D. partnership … public limited company

Answer 9

Answer: D

Question 10

Which of the following is an advantage of a partnership over a sole proprietorship?
A. A partnership can have more sources of capital.
B. A partnership enjoys a lower profits tax rate.
C. A partnership is a separate legal entity but a sole proprietorship is not.
D. A partnership can easily transfer ownership to others while a sole proprietorship cannot.

Answer 10

Answer: A

Question 11

Many private limited companies choose to become a public limited company because

(i) more capital can be raised.
(ii) the tax rate is lower.
(iii) shares can be transferred freely.

A. (i) only
B. (ii) only
C. (i) and (iii)
D. All of the above

Answer 11

Answer: C

Question 12

Which of the following are the advantages of a franchise?

(i) Autonomy in operation and management
(ii) Well-known brand
(iii) Easy to set up
(iv) Large shop’s benefit

A. (i) and (ii)
B. (iii) and (iv)
C. (ii), (iii) and (iv)
D. All of the above

Answer 12

Answer: C

Question 13

Which of the following statements correctly describes the difference between ordinary shareholders and preference shareholders?
A. Preference shareholders can earn more dividends than ordinary shareholders when the company earns more profit.
B. Preference shareholders have voting rights while ordinary shareholders do not.
C. Preference shareholders receive dividends before ordinary shareholders are paid.
D. Preference shareholders are entitled to special dividend shares while ordinary shareholders are not.

Answer 13

Answer: C

Question 14

Which of the following characteristics are common to private limited companies and public limited companies?

(i) Easy to set up
(ii) Need to disclose financial information
(iii) Limited liability for shareholders
(iv) Separate legal entity

A. (i) and (ii)
B. (iii) and (iv)
C. (ii), (iii) and (iv)
D. All of the above

Answer 14

Answer: B

Question 15

The advantage of a private limited company over a public limited company is that
A. there is no need to disclose financial information to the public.
B. shares of a private limited company are bought and sold freely on the stock market so that more capital can be raised.
C. the separation of ownership and management in a private limited company enables specialists to take up different roles.
D. a private limited company enjoys a lower profits tax rate.

Answer 15

Answer: A

Question 16

Which of the following descriptions concerning joint venture is false?
A. A joint venture is legally separate from the partners in a joint venture.
B. A joint venture is formed to achieve specific purposes.
C. A joint venture can only be formed by two entities.
D. A joint venture can be formed by companies from different countries.

Answer 16

Answer: C

Question 17

Which of the following is/are the disadvantage(s) of a joint venture?

(i) A joint venture can be terminated without the consent of all parties.
(ii) Partners may lose autonomy.
(iii) Product information may be leaked to partners.
(iv) A joint venture needs to pay a higher profits tax.

A. (i) only
B. (ii) and (iii)
C. (ii) and (iv)
D. All of the above

Answer 17

Answer: B

Question 18

Which of the following is/are the advantage(s) of becoming a franchisee?

(i) Franchisees do not need to pay management and promotional fees when the business is not profitable.
(ii) Franchisors provide a wide range of support to franchisees.
(iii) Franchisees can enjoy bulk sales discounts.
(iv) The risk of launching new products can be shared.

A. (ii) only
B. (ii) and (iii)
C. (i), (iii) and (iv)
D. All of the above

Answer 18

Answer: B

Question 19

The difference between public corporations and government departments is that
A. a government department is owned by the government but a public corporation is not.
B. a public corporation has a separate legal existence but a government department does not.
C. a public corporation is more efficient in decision-making processes.
D. a government department can raise capital for big projects through the public but a public corporation cannot.

Answer 19

Answer: B

Question 20

Which of the following are the common characteristics of a public corporation and a government department?

(i) Wholly owned by the government
(ii) Separate legal entity
(iii) Set up through legislation
(iv) Provides services to the general public

A. (i) and (iv)
B. (ii) and (iii)
C. (i), (ii) and (iv)
D. All of the above

Answer 20

Answer: A

Question 21

Some public services are provided by public corporations instead of government departments because
A. it is easier to raise capital.
B. the government wants to enhance efficiency.
C. the government wants to avoid wasting resources.
D. All of the above

Answer 21

Answer: B

Question 22

Forming a joint venture can
A.	bring in different types of assets and expertise.
B.	gain access to foreign markets.
C.	pool in the partners’ resources.
D.	All of the above

Answer 22

Answer: D

Question 23

The main purpose of the privatisation of public enterprises is to
A. increase the operational efficiency of public enterprises.
B. simplify the administrative structure.
C. operate public enterprises on a self-financing basis.
D. All of the above

Answer 23

Answer: A

Question 24

Which of the following statements concerning the recent developments in public enterprises is false?
A. Some government departments has been integrated and reorganised.
B. All public enterprises have been privatised by the government.
C. The government has set up trading funds to run some government departments.
D. The government has appointed more and more private enterprises to carry out public services.

Answer 24

Answer: B

Question 25

Which of the following statements about multinational corporations (MNCs) is true?
A. Most MNCs are listed public limited companies.
B. Most MNCs are labour-intensive and use relatively simple technology.
C. MNCs are usually slow to respond to market changes.
D. MNCs often employ professional managers to run their business.

Answer 25

Answer: B

Question 26

Multinational corporations contribute to developing countries by

(i) bringing in capital.
(ii) employing local workers.
(iii) encouraging technology transfers.
(iv) increasing specialisation in goods production.

A. (i) and (iv)
B. (ii) and (iii)
C. (i), (ii) and (iii)
D. All of the above

Answer 26

Answer: C

Question 27

Which of the following statements concerning a limited company is false?
A. Changes in directors will not affect the continuity of the company.
B. Shareholders can elect a board of directors to run the company.
C. The liability of shareholders is limited to the amount they have invested.
D. A limited company should disclose financial information to the general public

Answer 27

Answer: D

Question 28

When a sole proprietorship becomes a private limited company,
A. the company can issue shares to the general public.
B. the company’s future is no longer threatened by the death of the owner.
C. the company can enjoy a lower profits tax.
D. the company has to disclose financial information to the public.

Answer 28

Answer: B

Question 29

The following table shows the involvement of Ashley and Nicholas in a company.
1. Invest money 2. Ownership 3. Disclose identity 4. Participate in running the business
Ashley 1. Yes 2. Yes 3. No 4. No
Nicholas 1. No 2. No 3. Yes 4. No

Answer 29

Answer: B

Question 30

The following table shows the involvement of Ashley and Nicholas in a company.
1. Invest money 2. Ownership 3. Disclose identity 4. Participate in running the business
Ashley 1. Yes 2. Yes 3. No 4. No
Nicholas 1. No 2. No 3. Yes 4. No

Answer 30

Answer: B

Question 31

Why do most multinational corporations choose to go public and become public limited companies? (4 marks)

Answer 31

Answer:
 Public limited companies can issue shares to the public. It is also easier for them to obtain loans from banks and make purchases on credit because of their higher creditworthiness. More capital can support the large-scale operations of multinational corporations. (2 marks)
 The separation of ownership and management enables the company to get specialists to take up different roles. This improves the management and efficiency of the company. (2 marks)

Question 32

Suggest three ways that an SME can compete with a multinational corporation by taking advantage of its characteristics. (6 marks)

Answer 32

Answer:
 SMEs can be more innovative and introduce new products to attract customers.
 SMEs should keep their operations flexible so that they can make changes promptly. Their flexibility can enable them to adapt to rapid changes in the market.
 SMEs should maintain close relationships with their customers. They can customise their products or services to the individual needs of their customers in order to provide better services to them.
 SMEs can select a specified group of customers (niche market) and tailor their products and services to cater for their needs.
(Any three of the above, 2 marks each)

Question 33

Identify three differences between an ordinary shareholder and a preference shareholder. (6 marks)

Answer 33

Answer:

1: Ordinary shareholder 2: Preference shareholder
Dividends:
1. Depends on company’s profits 2. Fixed (2 marks)
Preference to receive dividends:
1. No (after preference shareholder) 2. Yes (2 marks)
Voting rights: 1. Yes 2.No (2 marks)

Question 34

Ethan is a designer in a public limited advertising company. For years, she has gained a lot of experience in liaising with clients on concept design and development. Since she is not satisfied with the management of the company, she is thinking of opening a design house of her own. Ethan decides to put down $100,000 as her initial investment. To save on cost, she will not hire any staff and will handle all the work by herself.

(a) If the business fails, how much will Ethan lose? (1 mark)
(b) What problems will Ethan likely face as a sole proprietor? (4 marks)

Answer 34

Answer:
(a) As a sole proprietorship is not a legal entity, the owner’s liability is unlimited. Therefore, if the business fails, the amount of loss can be unlimited. (1 mark)

(b)  Ethan has unlimited liability. If the business fails, Ethan may lose not only the business, but also all her possessions.
 Ethan has a great responsibility and a heavy workload. She has to work long hours and has little time to rest.
 Ethan will probably not have all the skills needed to develop the business well, e.g., marketing , accounting and management. It will be difficult for her to run the business.
 If Ethan falls sick or even dies, there will be no one to succeed her in her business. The business may have to close down.
 The source of capital is quite limited for Ethan’s business. Its sources mainly come from Ethan’s savings, retained profits or loans from Ethan’s friends and relatives. Because of the firm’s low creditworthiness, Ethan may have difficulty in obtaining loans from banks or making purchases on credit.
 With limited resources, Ethan has to face keen competition from large businesses.
 Ethan may have a heavy burden of some unavoidable costs which account for a large proportion of her total costs.
(Any four of the above, 1 mark each)

Question 35

Ethan is a designer in a public limited advertising company. For years, she has gained a lot of experience in liaising with clients on concept design and development. Since she is not satisfied with the management of the company, she is thinking of opening a design house of her own. Ethan decides to put down $100,000 as her initial investment. To save on cost, she will not hire any staff and will handle all the work by herself.

(c) If Ethan dies, how will the business be affected? (1 mark)
(d) Amy, one of Ethan’s friends, suggests that Ethan can find a partner to share the business risks. Besides sharing business risks, what advantages can Ethan gain by forming a general partnership over a sole proprietorship? (4 marks)

Answer 35

Answer:
(c) As a sole proprietorship lacks continuity, the business has to close down. (1 mark)

(d)  Division of labour: Each partner can contribute his expertise and ability to the business, e.g., the new partner can help Ethan in marketing, accounting and management.
 More sources of capital: The new partner can bring in more capital, which leads to further and better business development.
(Any two of the above, 2 marks each)

Question 36

The following is information about Firm X, a gift premium manufacturer in Hong Kong.

Legal entity Yes
Number of shareholders 40
Source of capital Raised by issuing shares
Financial information Disclosure to public not required

Due to the declining performance of the company in recent years, the CEO of the company decides to resign on his own will. His resignation is quickly approved by the board of directors. The board of directors is now considering converting the company into a public limited company.

(a) Which form of business ownership does Firm X belong to? (1 mark)
(b) What advantages can Firm X gain from becoming a public limited company? (4 marks)

Answer 36

Answer:
(a) Firm X is a private limited company. (1 mark)
(b)
 It is easier to obtain loans from banks and make purchases on credit because of its higher creditworthiness.
 More capital can be raised through issuing shares on the stock market
 The separation of ownership and management enables the company to get specialists to take up different roles. This improves the management and efficiency of the company.
(Any two of the above, 2 marks each)

Question 37

Dave and Marco plan to open a supermarket in the form of a general partnership. Each will invest $200,000. Dave will be responsible for merchandising and marketing in the supermarket while Marco will be engaged in management and accounting duties. Today, Dave sees an advertisement in a newspaper.

GREAT WAY TO START YOUR BUSINESS
With 50 years in business, KK SUPERMARKET INTERNATIONAL’s tremendous strength lies in its good reputation. We are famous for our quality goods and services.

KK SUPERMARKET INTERNATIONAL now invites franchisees.

Join us and you can gain the following advantages:
 Low investment costs
 No experience required
 Fast set-up procedures
—————————————————————————————–
Set up your business with ease.

For details, please call 23122008.

As Dave and Marco do not have any experience in the industry, Dave suggests that they should start their business as a franchisee.

(a) When compared with setting up a supermarket as a general partnership, how can Dave and Marco benefit from becoming a franchisee of KK Supermarket International? Explain three ways. (6 marks)
(b) List four criteria in determining whether they should start their business as a franchisee. (4 marks)

Answer 37

Answer:
(d)  They can obtain support from the franchisor in terms of marketing, inventory supplies, accounting and management. As a supermarket needs to have a wide variety of goods, KK Supermarket International’s years of experience in the industry can help Dave and Marco in sourcing.
 KK Supermarket International has built up goodwill. Their products are well-known and accepted by customers.
 As KK Supermarket International provides a wide range of support, they will find it easy and quick to set up their supermarket.
 Since a supermarket sells a wide variety of goods, with limited resources as a general partnership, the purchasing prices of goods can be very high due to the small quantities they buy. If they join KK Supermarket International, they can enjoy the benefits of a large shop such as lower costs when buying stocks in bulk. This greatly reduces the cost of goods. KK Supermarket International may also have greater bargaining power to fight for a better purchasing price.
 The management system of KK Supermarket International helps establish goodwill quickly.
(Any three of the above, 2 marks each)

(e)  Can they afford the franchise fee, promotional and management fees?
 Do they need support from the franchisor? Do they have experience in running a supermarket? Do they have knowledge of the industry?
 Can KK Supermarket International’s reputation attract a lot of customers?
 Do they want autonomy in their business operation?
 Can they communicate and receive support within a short time? Is the franchisor’s office located overseas? Will the geographical difference affect their business?
(Any four of the above, 1 mark each)

Question 38

If you set up a business with your friend as a partnership, which of the following benefits would you enjoy?

(1) You may bear limited liability.
(2) The company would exist as a separate legal entity.
(3) Management expertise offered by a board of directors.
(4) Company information needs not be disclosed to the public.

A. (1) and (2) only
B. (1) and (4) only
C. (2) and (3) only
D. (3) and (4) only

Question 39

Ms Cheung is working in a long-established grocery store. She plans to resign to establish her own grocery store. Mr Sze, aged 62, is the employer of Ms Cheung. He wants to retire and invites Ms Cheung to take over his store.

Compared with establishing a new store, which of the following is the benefit to Ms Cheung of taking over Mr Sze’s store?

A. enjoy economies of scale
B. acquire existing customer source
C. lower operational costs
D. lower initial investment

Question 40

Which of the following descriptions of business ownership is correct?

A. A limited company distributes dividends to ordinary shareholders before preference shareholders.
B. A franchise is formed by two or more business entities to develop, produce or sell products.
C. A sole proprietorship does not have a separate legal entity status.
D. Public enterprises are wholly owned by large multinational corporations to provide essential goods and services to the public.

Question 41

Which of the following statements is correct?

A. All partners in a limited partnership enjoy limited liability.
B. All shareholders of a limited company have voting rights in the board of directors’ meeting.
C. A limited company needs to disclose its financial statements to the public.
D. A public corporation is owned by the government.

Question 42

Which of the following descriptions about a franchised shop is correct?

A. operates under the authorisation of franchisor
B. has full control over its promotion strategies
C. must be registered as a limited company
D. only applicable to retail and catering businesses

Question 43

All the owners of a business enjoy limited liability. Although the business has no regulatory obligation to disclose its financial reports, it still publishes these reports via the internet each year. The business is a

A. limited partnership.
B. private limited company.
C. company listed on the Main Board.
D. company listed on the Growth Enterprise Market Board.

Question 44

Which of the following statements about limited companies in Hong Kong is/are correct?

(1) A limited company is a separate legal entity.
(2) Limited companies enjoy a lower profits tax rate than sole proprietorships.
(3) Limited companies are required to publish their financial statements in a newspaper.

A. (1) only
B. (2) only
C. (1) and (3) only
D. (1), (2) and (3)

Question 45

A limited partner ______________________________.

A. is a nominal partner
B. is not liable for the debts of a partnership
C. does not need to invest money into a partnership
D. does not take part in the management of a partnership

Question 46

Which of the following is/are the characteristic(s) of a public corporation?

(1) Its losses are borne by taxpayers.
(2) It is operated on a commercial basis.
(3) The government is involved in its daily operations.

A. (1) only
B. (2) only
C. (1) and (3) only
D. (2) and (3) only

Question 47

Which of the following is/are the characteristic(s) of multinational corporations located in Hong Kong?

(1) Their operations also take place outside Hong Kong.
(2) They are listed on the stock exchange of Hong Kong.
(3) They have more than 100 employees.

A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

Question 48

Which of the following descriptions of joint ventures in Hong Kong is correct?

A. Partners of a joint venture usually share the profits of the joint venture equally.
B. A joint venture must be formed by one local company and one foreign company.
C. A joint venture is an entity independent from all its partners.
D. A joint venture enjoys a lower profits tax rate than a general partnership.

Question 49

Which of the following statements about business ownership are correct?

(1) Public corporations are wholly owned by the Government.
(2) The minimum number of shareholders of a limited company is 2.
(3) A nominal partner is not the owner of the partnership.

A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

Question 50

A __________ is easier to set up and enjoys a relatively low tax rate in Hong Kong. All owners are liable for the business decisions of one another in this entity.

A. partnership
B. sole proprietorship
C. private limited company
D. public limited company

Question 51

Compared to a sole proprietorship, which of the following is/are the advantage(s) of a limited company?

(1) the business will not be closed upon withdrawal or death of the owner(s)
(2) the setup cost is lower
(3) the profits tax rate is lower

A. (1) only
B. (1) and (2) only
C. (1) and (3) only
D. (2) and (3) only

Question 52

From the point of view of a franchisor, which of the following is/are the shortcoming(s) of running a business in the form of franchising?

(1) Franchisee may set up his own business to become a competitor.
(2) It is difficult to wholly control the operation style of franchisee(s).
(3) If a franchisee manages his business poorly, the reputation of the whole franchise business will be affected.

A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

Question 53

Which of the following statements about a nominal partner is/are correct?

(1) He is liable for the debts of the partnership.
(2) He takes part in the operation of the partnership.
(3) His reputation helps promote the partnership’s businesses.

A. (1) only
B. (2) only
C. (3) only
D. (2) and (3) only

Question 54

Which of the following statements about the Ocean Park Corporation, a public corporation in Hong Kong, are correct?

(1) It is listed on the Hong Kong Stock Exchange.
(2) Its board of directors is appointed by the government
(3) It is self-sufficient financially.

A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

Question 55

Which of the following statements about a partnership is/are correct?

(1) There is no limited partner in a general partnership.
(2) Limited partnership is a legal entity separate from its owners.
(3) All partners in a limited partnership only have limited liability.

A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

Question 56

Compared to a public limited company, which of the following is/are the advantage(s) of a private limited company?

(1) is subject to less government supervision
(2) does not need to distribute dividends to shareholders
(3) obtains financing more easily

A. (1) only
B. (2) only
C. (3) only
D. (1) and (2) only

Question 57

Which of the following is/are difference(s) between a sole proprietorship and a general partnership?

Sole proprietorship	General partnership

(1) decision-making process shorter longer
(2) profits tax rate lower higher
(3) liability borne unlimited limited

A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

Question 58

Which of the following statements about joint ventures is/are correct?

(1) The business risk is shared by the joint venture partners.
(2) The joint venture will normally be dissolved when the joint project is completed.
(3) A joint venture is a new business entity formed by at least two businesses.

A. (1) only
B. (1) and (2) only
C. (2) and (3) only
D. (1), (2) and (3)

Question 59

Ken and Tracy plan to establish and operate a restaurant together, in which the withdrawal of either side would not lead to its closure. Which form of business ownership should they adopt?

A. Partnership
B. public corporation
C. private limited company
D. listed company

Question 60

The following are the differences in characteristics of two partners in a partnership:

                                                Partner A	Partner B bearing of liabilities	                not required	required introduction of capital	                not required	required involvement in daily operations	not required	not required

Partner A is a (1) partner, while Partner B is a (2) partner.

	(1)  		       (2)  
A.	nominal		limited
B.	nominal		general
C.	general		limited
D.	limited		nominal

Question 61

Which of the following statements about multinational corporations is/are correct?

(1) Multinational corporations are public limited companies.
(2) Multinational corporations operate in different countries.
(3) A local company becomes a multinational corporation by raising capital in other countries.

A. (1) only
B. (2) only
C. (1) and (2) only
D. (2) and (3) only

Question 62

Which of the following are the characteristics of a public corporation?

(1) The government participates in its daily operations.
(2) The chairperson of the board of directors is appointed by the government.
(3) It is a separate legal entity.

A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

Question 63

In deciding whether to join a fashion retail chain or not, suggest two criteria for assessing the franchisor. (4 marks)

Question 64

Mary is an experienced designer who has a wide customer network. She is considering setting up a small interior design firm on her own. At the same time, another designer, Paul, invites her to form a partnership.

Give two reasons why Mary should accept Paul’s invitation instead of setting up a firm on her own. (4 marks)

Question 65

Patrick, Queenie and Ronald jointly set up a business in the form of a limited partnership. The partnership agreement contains the following terms:

 Only Queenie and Ronald will contribute capital.
 Patrick and Ronald have no involvement in the daily operations of the partnership.
 If the partnership is liquidated, only Queenie has to pay the outstanding debts of the partnership, using her personal funds.

(a) Identify the nominal partner in this partnership. (1 mark)
(b) Suggest two contributions that a nominal partner could make to a partnership. (4 marks)

Question 66

To raise money for expansion, John wants to change the form of business ownership of the firm. He plans to invite five people to invest in and join the business as owners. After expansion, all owners shall have limited liability for the firm. Their ownership cannot be freely transferred.

(a) According to the above information, which form of business ownership will John adopt for the expansion? (1 mark)
(b) Apart from the restriction in ownership transfer, suggest two other disadvantages for the form of business ownership mentioned in (b), as compared to a sole proprietorship. (4 marks)

Question 67

Carlo operates a reputable restaurant chain in Italy with customers from all over the world. He is planning to establish branches in Hong Kong. A business consultant suggests him to operate the branches in the form of franchising.

(a) Give two reasons why Carlo should establish the branches in the form of franchising instead of setting up his own restaurants in Hong Kong. (4 marks)

Question 68

(a) What is a joint venture? (1 mark)

b) Outline two advantages of running a business in the form of a joint venture. (4 marks

Question 69

Pizza Deli is a multinational corporation founded in Italy and has branches in London and Sydney. It is considering expanding to Asia by setting up its own branch in Hong Kong. A reputable restaurant chain in Hong Kong invited Pizza Deli to join them as a franchisee.

(a) Describe the main feature of Pizza Deli as a multinational corporation. (2 marks)
(b) Explain to Pizza Deli two disadvantages of joining the restaurant chain as a franchisee instead of setting up its own branch. (4 marks)

Question 70

Company A and Company B specialise in designing and building large shopping malls in Hong Kong. They plan to set up a new business together to carry out a construction project – building a shopping mall in Causeway Bay. The project will last for five years and the new business will be dissolved upon the completion of the project.

(a) Identify the form of ownership of the new business to be set up by Company A and Company B. (1 mark)
(b) Explain one advantage of operating in the form of business ownership in (a) above. (2 marks)
(c) Explain one difference between a partnership and the form of business ownership in (a) above. (2 marks)

Question 71

David and Raymond operate a media service business with offices in Hong Kong and other Asian countries. If a shareholder wants to transfer his shares to new investors, approval must be obtained from the board of directors. To help with expansion, David suggests changing the form of business ownership so that more funds can be raised from issuing shares to the public. However, Raymond worries that the new form of business ownership will have some disadvantages for the business, as compared with the existing form.

(a) Explain whether the above business is a multinational corporation. (2 marks)

(b) (i) Identify the current form of ownership of the media service business. (1 mark)
(ii) Explain two disadvantages of the new form of business ownership, as compared with the existing form. (4 marks)