Paul is the Managing Director of a private limited company called PShirts. It manufactures and sells men’s and women’s shirts in country Y. Its products are priced lower than most of its competitors. Sales have fallen recently even though there has been an economic boom. Paul is thinking about starting to sell shirts in other countries. One of the directors is worried about legal controls in other countries.
05 Identify and explain two disadvantages to PShirts of being a private limited company [6]
Possible KNs
> Can only sell shares to friends and family
> Shareholders may expect dividends
> Have to publish financial accounts
> Legal formalities to set up and run the business
Please read the answer of the previous student & if the answer seems well developed don't use the same KN in your answer, try to give new one.
05 Identify and explain two disadvantages to PShirts of being a private limited company [6]
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Sir Afzal Shad
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Muzamil Ahmed
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Re: 05 Identify and explain two disadvantages to PShirts of being a private limited company [6]
[KN] Can only sell shares to friends and family.
[APP] Pshirts cannot sell shares to the public to raise extra money for expanding into other countries.
[AN] This limits the companies ability to put money into expansion and also reduces cash available for marketing or production. It might slow down growth compared to other competitors and makes it difficult to invest in new technology.
[KN] Legal formalities to set up and run the business
[APP] Pshirts must follow all laws and rules in other countries. They have to register and keep up with finances.
[AN] This increases costs and makes running the business harder which takes extra time. it might slow down new product launches and there can be fines if any law is broken.
Examiner Comments: [6/6]
[APP] Pshirts cannot sell shares to the public to raise extra money for expanding into other countries.
[AN] This limits the companies ability to put money into expansion and also reduces cash available for marketing or production. It might slow down growth compared to other competitors and makes it difficult to invest in new technology.
[KN] Legal formalities to set up and run the business
[APP] Pshirts must follow all laws and rules in other countries. They have to register and keep up with finances.
[AN] This increases costs and makes running the business harder which takes extra time. it might slow down new product launches and there can be fines if any law is broken.
Examiner Comments: [6/6]
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Shahmir Arshad
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Re: 05 Identify and explain two disadvantages to PShirts of being a private limited company [6]
KN: Difficult to raise money for expansion
APP:As a private limited company, PShirts is not allowed to sell shares to the general public on a stock exchange. If Paul needs money to start selling shirts in other countries, he can only get it from people he knows, like friends, family, or current directors.
AN:Because the pool of investors is small, PShirts might not be able to raise enough cash to pay for international shipping or new factories. This means Paul might have to take out expensive bank loans instead, which increases the company's debt and interest payments.
KN:Competitors can see their secrets
APP:PShirts is legally required to publish its financial accounts every year. This means the public (including their rivals) can see exactly how much profit or loss the company is making.
AN:Since sales are falling even though the economy is doing well, competitors will see this in the published accounts. They might realize PShirts is struggling and decide to lower their prices even more to "squeeze" PShirts out of the market. This makes it harder for Paul to fix the business because his rivals know his weak spots.
APP:As a private limited company, PShirts is not allowed to sell shares to the general public on a stock exchange. If Paul needs money to start selling shirts in other countries, he can only get it from people he knows, like friends, family, or current directors.
AN:Because the pool of investors is small, PShirts might not be able to raise enough cash to pay for international shipping or new factories. This means Paul might have to take out expensive bank loans instead, which increases the company's debt and interest payments.
KN:Competitors can see their secrets
APP:PShirts is legally required to publish its financial accounts every year. This means the public (including their rivals) can see exactly how much profit or loss the company is making.
AN:Since sales are falling even though the economy is doing well, competitors will see this in the published accounts. They might realize PShirts is struggling and decide to lower their prices even more to "squeeze" PShirts out of the market. This makes it harder for Paul to fix the business because his rivals know his weak spots.