IGCSE Business: Types of business organisation (Cambridge 0264) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set covers section 1.4 (Types of business organisation) of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. Both papers are based on all the subject content. Revise first with the study guide and revision notes. See also the course hub, the printable checklist and the free diagnostics.

Money figures are in dollars ($). All businesses and people are invented.

Questions

1. Define the term limited liability. [2]

2. Identify two types of business organisation whose owners have unlimited liability. [2]

3. Outline two differences between private and public limited companies. [4]

4. Maplestead Print is a partnership. Ms Kapoor invested 45,000 and Mr Takahashi 15,000. They share profit in the ratio of their investments. Last year’s profit was 72,000.

(a) Calculate each partner’s share of the profit. [3] (b) Mr Takahashi asks to share profit equally instead. Calculate how much more he would receive. [2] (c) Explain one reason for a written partnership agreement. [2]

5. Mr Okeford runs Okeford Tiling as a sole trader. Profit last year was 31,000. A hotel has offered a large contract that needs 60,000 of materials bought in advance.

(a) Explain one advantage to Mr Okeford of remaining a sole trader. [2] (b) Explain one disadvantage to Mr Okeford of remaining a sole trader. [2]

6. Silverthorne Ltd has 200,000 shares. Ms Silverthorne owns 120,000 of them. She plans to sell 100,000 new shares to an outside investor to raise capital.

(a) Calculate the percentage of the company Ms Silverthorne will own after the sale. [2] (b) Explain why this change matters for her control of the company. [2]

7. Tarragon Kitchens franchises its restaurants. A franchisee pays an initial fee of 30,000 and a royalty of 5% of sales. One franchisee has year-one sales of 360,000 and an operating profit of 70,000 before the royalty and initial fee.

(a) Calculate the royalty paid. [2] (b) Calculate the franchisee’s profit in year one after paying the royalty and the initial fee. [2] (c) Explain one advantage to Tarragon Kitchens of franchising. [2] (d) Explain one disadvantage to a franchisee of this franchise. [2]

8. Ferncliffe Dairy and Northwick Packaging plan a joint venture to make oat drinks for export. It will cost 900,000, shared in the ratio 2:1.

(a) Calculate the amount each business will pay. [2] (b) Outline two advantages of the joint venture to the two businesses. [4] (c) Explain one disadvantage of the joint venture. [2]

9. Ivanova Street Kitchen trains long-term unemployed people and sells meals to the public. Last year its sales revenue was 64,000 and total costs were 55,000.

(a) Define the term social enterprise. [2] (b) Calculate the surplus made last year. [1] (c) Explain one way in which the use of this surplus is likely to differ from that of a private limited company. [2]

10. Danvers Energy plc has 6,000,000 shares. Profit after tax was 2,400,000, and the directors pay 40% of it as dividends.

(a) Calculate the dividend per share. [3] (b) Calculate the dividend received by an investor with 45,000 shares. [1] (c) Explain one reason why a public limited company can raise more finance than a private limited company. [2]

11. Hana Yamanaka runs Yamanaka Pottery as a sole trader. Profit last year was 28,000. She wants to open three more studios costing 240,000 in total. She has savings of 30,000, wants to keep control and fears losing her home if the plan fails.

Justify a suitable type of business organisation for Hana. [8]

12. Nadia Kapoor is leaving her job to open a coffee shop, either as a Vestry Coffee franchise or independently.

	Vestry Coffee franchise	Independent shop
Initial fee	35,000	none
Royalty	7% of sales	none
Expected sales	300,000	220,000
Expected operating profit before fee and royalty	80,000	58,000

(a) Calculate the royalty Nadia would pay in a year. [2] (b) Calculate her expected annual profit from the franchise after paying the royalty. [1] (c) Justify whether Nadia should buy the franchise or open an independent shop. [5]

Answers

1. Owners can lose only the money they have invested in the business [1], so their personal assets cannot be claimed to pay the business’s debts [1]. [2] Examiner insight: A definition gains most from two linked ideas: the limit, and what is protected. “Cannot lose money” is too vague.

2. Sole trader [1]. Partnership [1]. [2] Examiner insight: Identify asks for a name only, so explanation adds nothing. Naming a private limited company here shows a liability mix-up.

3. Difference 1: a plc can sell shares to the general public, but a private limited company cannot [1], so a plc can usually raise much more capital [1]. Difference 2: plc shares are freely traded, usually through a stock exchange, whereas private company shares are sold privately [1], so private owners keep more say over who becomes a shareholder [1]. [4] Examiner insight: “Outline two differences” needs a contrast, not a separate feature of each type. Add a consequence to develop each point.

4. (a) The ratio of investments is 45,000 : 15,000 = 3 : 1 [1]. Ms Kapoor = 3/4 x 72,000 = 54,000 [1]. Mr Takahashi = 1/4 x 72,000 = 18,000 [1]. [3] (b) Equal share = 36,000 [1]. Extra = 36,000 - 18,000 = 18,000 [1]. [2] (c) It sets out how profit is shared [1], so a disagreement over shares can be settled by what was agreed [1]. [2] Examiner insight: Showing the ratio step gives working to credit if a later slip occurs. Part (c) needs a benefit to the partners.

5. (a) He keeps all the profit [1], including that from the hotel contract, and need not consult anyone before accepting it [1]. [2] (b) He has unlimited liability [1], so if the contract fails he could pay the 60,000 for materials from personal assets, such as his home [1]. [2] Examiner insight: Explain needs more than a label such as “unlimited liability”: state its effect on Mr Okeford.

6. (a) New total = 200,000 + 100,000 = 300,000 [1]. Her share = 120,000/300,000 = 40% [1]. [2] (b) She falls from 60% to 40%, so she no longer holds a majority [1], and other shareholders could outvote her on important decisions [1]. [2] Examiner insight: A common slip is dividing by the old total. State the new total first, and say what 40% means for voting.

7. (a) Royalty = 5% x 360,000 [1] = 18,000 [1]. [2] (b) Profit after royalty = 70,000 - 18,000 = 52,000 [1]. After the initial fee = 52,000 - 30,000 = 22,000 [1]. [2] (c) It can open more outlets without providing most of the capital [1], because franchisees put in their own money, so the brand grows faster [1]. [2] (d) The franchisee must keep paying a royalty of 5% of sales [1], which reduces its profit every year [1]. [2] Examiner insight: Part (b) says year one, so deduct the initial fee too. In (c) and (d), keep to the viewpoint asked for.

8. (a) Ferncliffe = 2/3 x 900,000 = 600,000 [1]. Northwick = 1/3 x 900,000 = 300,000 [1]. [2] (b) Costs and risks are shared, so neither business carries the full 900,000 alone [1], which makes a large project more affordable [1]. Each brings skills, with Ferncliffe providing dairy knowledge and Northwick packaging expertise [1], which should improve the finished product [1]. [4] (c) The businesses may disagree about how the project should be run [1], which can slow decisions because both must agree [1]. [2] Examiner insight: Outline two advantages needs two separate points. Repeating “shared costs” in different words is one point.

9. (a) A business that trades to achieve social or environmental aims [1], with profit mainly reinvested in them rather than paid to owners [1]. [2] (b) 64,000 - 55,000 = 9,000 [1]. [1] (c) The surplus is likely to be reinvested in training the unemployed [1], whereas a private limited company would usually pay more profit to shareholders as dividends [1]. [2] Examiner insight: A definition needs the purpose, not just “a business that helps people”. In (c), contrast the use of the surplus.

10. (a) Total dividend = 40% x 2,400,000 = 960,000 [1]. Dividend per share = 960,000/6,000,000 [1] = 0.16 per share (16 cents) [1]. [3] (b) 45,000 x 0.16 = 7,200 [1]. [1] (c) A plc can offer its shares to the general public [1], so it can attract many investors and raise far more than a private company [1]. [2] Examiner insight: Apply the 40% before dividing by the number of shares. In (c), say why selling to the public raises more money.

11. Model answer: I recommend that Hana forms a private limited company [1]. The plan needs 240,000 and she has 30,000, so 210,000 must come from elsewhere [1]. Her profit of 28,000 is small beside this, so the risk is large [1]. A private limited company gives limited liability, so if the new studios fail she could lose only her investment and not her home [1]. She can sell shares to investors to raise part of the 210,000 [1], and by keeping more than half the shares she keeps control [1]. A partnership or sole trader with loans would have unlimited liability for a debt far larger than her profit [1]. A plc would be too costly for a small pottery. The private limited company has drawbacks, such as paperwork and a smaller ownership share, but it is most suitable [1]. [8] Examiner insight: A justify answer needs a clear choice, reasons tied to the case figures, and a view on an alternative. Listing all four types without choosing is weak.

12. (a) Royalty = 7% x 300,000 [1] = 21,000 [1]. [2] (b) 80,000 - 21,000 = 59,000 [1]. [1] (c) The franchise earns 59,000 against 58,000 independently, only 1,000 more a year [1], and the 35,000 initial fee would take many years to recover from that gap [1]. However, the franchise forecast relies on the brand lifting sales to 300,000, and a known brand with support and training lowers the risk of failure for a newcomer [1]. The independent shop avoids rules and ongoing payments [1]. On balance, if Nadia is confident she can build sales, the independent shop may be better. If she lacks experience, the franchise is safer, and I would recommend it [1]. [5] Examiner insight: The 1,000 gap against the 35,000 fee is the key evidence. Quote the numbers, then weigh them against risk.

Where marks are usually lost

• Defining limited liability without both the limit and what it protects.
• Giving a feature without explaining its effect on the business in the question.
• Treating limited liability as protection from failure rather than of personal assets.
• Using the old total for percentages after new shares are issued.
• Forgetting the initial fee in a first-year franchise calculation.
• Answering from the wrong viewpoint, such as the franchisor when the franchisee is asked about.
• Giving one advantage twice in different words when asked for two.
• Recommending a type without comparing it with another or using the figures.

Frequently asked questions

Are these Cambridge IGCSE Business 0264 past paper questions? No. They are original questions written for Marlbridge on section 1.4 (Types of business organisation), with invented businesses. They do not reproduce past papers, so use them alongside your board’s official papers.

How do you work out a shareholder’s percentage after new shares are issued? Find the new total number of shares first, then divide the shareholder’s holding by that new total and multiply by 100. Dividing by the old total is a common slip.

What is easy to forget in a first-year franchise calculation? The initial fee. In the first year the franchisee pays both the royalty on sales and the initial fee, so both must be deducted from operating profit.

How do you answer a franchise question from the right viewpoint? Check whether the question asks about the franchisor, the business that owns the brand, or the franchisee, who runs the outlet. Answering from the wrong side earns no credit, and questions on both sides need both views.

How do you answer a “recommend and justify” question on business type? Make a clear choice, give reasons tied to the case figures, such as the finance needed and the risk, and say why an alternative type is less suitable. Listing all four types without choosing is weak.

Next steps

• Review the study guide and use the revision notes.
• Return to the course hub and the printable checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Aligned to section 1.4 of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International Education).