IGCSE, A Level Business Student Forum

Cutter is a family owned private limited company. It manufactures a luxury brand of coats. In 2013 sales revenue increased by $3m and retained profits also increased. ‘The marketing mix is working’ said the Marketing Director. Cutter’s Operations Director thinks that batch production is still the right method of production to use, but he cannot decide whether on the job or off the job training is better for the business.

03 Analyze two possible advantages to Cutter of being a private limited company. [4]

Possible KN Points:
> limited liability (against unincorporated businesses)
> control over who can buy shares (against PLC)
> more credibility with suppliers (against partnership)
> separate legal identity,
> continuity after death of owners (against unincorporated businesses)

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.

[KN] Limited liability.
[APP] If Cutter faces financial losses or debts then the family owners are only responsible for the companies money and not their personal savings.
[AN] This protects the family’s personal assets which encourages them to take proper strategic risks such as launching new luxury coat designs without fear of losing their homes or savings.

[KN] Control over "share" ownership
[APP] Cutter can decide who is allowed to buy shares which will keep ownership within the family or trusted partners.
[AN] This keeps all business decisions within the family so only trusted owners can make decisions affecting the quality and style. Outside investors cannot change how the company is being run .

Examiner Comments:
APP1 Needs improvement (AN1 has mentioned APP point)
APP2 and AN has the same issues

[Kn]: Seperate legal entity
[App]: This allows Cutter to have an edge over sole traders or partnerships when it comes to taking loans to invest in a new chain of coat designs.
[KN]: Continuity after death of owners.
[App]: As Cutter is a luxury store with a reputation making it generate a $3M higher revenue than last year, it would be less eager to lose the business if one of the owner dies. Thus, being a privated limited company has more significance over partnerships for the business being still legally running even if one of the owner dies.
Moderator Comment:
write another kn on your own words
KN 1:Add 1 App point

KN: Limited liability
APP:Cutter is a private limited company, so the owners have limited liability. This means they will only lose the money they invested in the business if Cutter fails.
AN:Because Cutter makes luxury coats, production costs may be high. Limited liability reduces the owners’ personal risk, which may encourage them to invest more money or take business decisions to grow sales, helping the company expand safely.
KN:Control over who can buy shares
APP:In a private limited company, shares are not sold to the public and existing owners can decide who is allowed to buy shares.
AN: Since Cutter is family owned, this helps the family keep control of business decisions and protect the brand image. This can lead to more consistent management decisions, helping maintain the quality and reputation of its luxury coats.