Commerce WASSCE (PC 2ND), 2018

Question 2

 

 

Sonko Partners have been in business for ten years. The partners observed that there was need to increases the capital of the business and were advised to form a limited liability company.

 

  1. List five items that are in their partnership agreement.

 

  1. List five sources of capital available to their business if they form a limited liability company.

 

  1. Explain five factors that could bring their business to an end as a limited liability company.

 

Observation

The question demanded the application of the knowledge of Partnership and Limited Liability Company. But most students who attempted  the question answered it from partnership point of view.

The expected responses to the question include:

 

2 (a) Items found in the partnership agreement

 

  1. Names and addresses of partners.
  2. Contribution of capital by partners.
  3. Management of the business.
  4. Profit/Loss sharing ratio.
  5. Introduction or admission of new partners.
  6. Interest on capital.
  7. Drawings allowed and limit.
  8. Salaries payable to partners.
  9. Procedure for dissolution.
  10. Resolution of conflict/dispute.
  11. Duration of the partnership.

                                                                  

2 (b) Sources of capital available to their business as a limited liability company

 

  1. Loans from financial institutions.
  2. Leasing of equipment.
  3. Buying through hire purchase.
  4. Sale of shares through second-tier security market.
  5. Buying on credit/trade credit.
  6. Bank overdraft.
  7. Sale of assets.
  8. Plough back profit.

   

2(c) Factors that could bring the business to an end as a limited liability company

 

  1. If the business owes more than it can afford to pay back, a creditor can apply to court for liquidation./Court order.
  2. If the objects of the company become illegal, this could cause it to close down.
  3. If the company did not render the statutory reports within the maximum period allowed.
  4. If the shareholders pass a resolution to wind up. / Voluntary liquidation.
  5. If the business fails to commence within one year of incorporation.
  6. If the number of shareholders falls below the statutory requirement.
  7. Continuous disagreement among the directors.
  8. If the purpose for which the company was set up has been fulfilled.