1.3 Business Ownership Practice Questions

This question is about sole traders and partnerships. You do not need to refer to a particular business in your answers.

This question is about private and public limited companies. You do not need to refer to a particular business in your answers.

Text 1 — Pebble & Thread

Nadia Oduya set up Pebble & Thread, an upholstery and curtain-making workshop, in 2019. She operates as a sole trader and employs one part-time machinist. Nadia does all the sewing, quotes for every job, orders the fabric and keeps the accounts. She regularly works 60 hours a week and has not had a holiday for two years.

Demand has grown and Pebble & Thread now turns away work because Nadia cannot complete the orders on time. She would like to rent a larger unit and buy a second industrial sewing machine, which together would cost £24 000. Nadia has already put most of her savings into the business and her bank has refused a further loan.

Leo Bannerman, a qualified furniture restorer who has run his own workshop for 12 years, has offered to join Pebble & Thread as a partner. He would put £20 000 into the business.

Year	Revenue	Orders turned away
2022	£68 000	15
2023	£81 000	34
2024	£96 000	61

Text 2 — Ovenbrae Bakes

Ovenbrae Bakes is a bakery that supplies bread and cakes to cafés and hotels. It was set up in 2019 by Priya Raman and Fergus Strachan, who own the business as a partnership. The business now employs nine staff and delivers to 40 cafés across the region.

Priya and Fergus want to buy a second bakery unit, which would cost £180 000, and two new delivery vans. They do not have enough savings of their own and have only recently finished repaying their first bank loan. Fergus is worried that, as a partnership, he and Priya are personally responsible for any debts that the business cannot repay.

The partners are considering converting the business into a private limited company, to be called Ovenbrae Bakes Ltd. Priya's cousin, who owns a chain of coffee shops, has said that she would buy shares in the new company.

Revenue of Ovenbrae Bakes

Year	Revenue (£)
2022	240 000
2023	268 000
2024	312 000

Text 2 — Loom & Lathe

Loom & Lathe is a furniture maker based in the market town of Ashcombe. Ifeoma Clegg and Dilan Oyelaran set up the business as a partnership in 2021, using £30 000 of their own savings. They make handmade oak tables and chairs, which are sold in their own showroom and at craft fairs. The business now employs six people.

A national homeware retailer has offered Loom & Lathe a three-year contract to supply 400 tables a year. To accept the contract, the partners would need to open a second workshop and buy new machinery, at a total cost of £180 000. Loom & Lathe is still repaying its first bank loan.

Ifeoma and Dilan's accountant has advised them to convert the partnership into a private limited company before they take on the contract. Dilan is not sure that this is necessary.

Revenue and employees of Loom & Lathe (2022–2025)

Year	Revenue (£)	Number of employees
2022	148 000	2
2023	176 000	3
2024	212 000	5
2025	259 000	6

Reid & Okafor Grooming

Jess Okafor and Sam Reid run Reid & Okafor Grooming, a mobile dog grooming business in Leicester. They set up as a partnership in 2021 after both leaving jobs at a veterinary practice. Each drives a fitted van and visits customers at home. A full groom costs £48.

Last year Reid & Okafor Grooming had revenue of £96 000 and Jess and Sam each took £24 000 out of the business. They now turn away about 15 bookings a week because they are fully booked for six weeks ahead.

To take these bookings, they want to buy two more fitted vans, costing £38 000 in total, and employ two trained groomers. Neither partner wants to borrow the full amount from a bank. They are considering two ways to raise £40 000:

• Option 1: take on a third partner, a former colleague who would invest £40 000 and work in one of the new vans
• Option 2: convert Reid & Okafor Grooming into a private limited company and sell shares to family members to raise the £40 000.

Both partners are nervous about the £38 000 cost of the vans and about who would make decisions in future.

Thornwater Kayaking

Chloe Barnes and Tom Reece have been business partners since 2021. Their business, Thornwater Kayaking, runs kayak trips and courses in Shropshire. A half-day trip costs £38 per person and a beginner course costs £120.

The partners own 34 kayaks, which are kept in a rented storage unit costing £400 a month. Last year the business made a profit of £31 000, which the two partners shared equally.

Chloe and Tom did not sign a deed of partnership when they started. They now disagree about the future of the business. Chloe wants to buy a minibus and trailer, costing £60 000 in total, so that groups can be collected from Shrewsbury and driven to the river. Tom is worried about borrowing so much money, because as partners they have unlimited liability.

A bank has offered a £60 000 loan repayable over five years. Alternatively, the partners could convert the business into a private limited company and sell shares to two friends who have offered to invest the £60 000. Between them, the two friends would own 40% of the shares and would expect 40% of the profits each year. Chloe and Tom would own the rest equally.

Sorrelby Garden Care

Owen Pryce, aged 24, plans to start Sorrelby Garden Care, a garden maintenance business in Kettering. He has worked for a landscaping firm for four years and wants to choose which jobs he takes on and how he runs the business.

Owen needs £9 000 to buy a van, a mower and other tools. He has £4 000 of savings. A bank has said it may lend him £5 000, but only if he can show that the business has regular customers.

His friend Kezia Adeyemi has worked at a garden centre for six years and knows a lot about plants. She has offered to invest £5 000 and join the business as a partner. Kezia wants the business to start selling plants and garden designs as well as maintenance, which Owen is not sure about.

Owen has already been asked to look after 12 gardens each week from April to October.

Halvern Lighting Ltd

Aisha Karim and her brother Dev set up Halvern Lighting in 2018. The business designs and fits energy-saving lighting systems for offices and schools in the north of England. In 2021 they changed it from a partnership to a private limited company. Aisha and Dev each own 50% of the shares and are the only two directors. The business now employs 24 people.

In 2023 Halvern Lighting Ltd borrowed £350 000 from a bank to buy a larger workshop. Aisha and Dev were not asked to use their homes as security for the loan.

Aisha wants the company to start selling and fitting its systems across Europe. This would cost £4 million, and the bank has refused to lend this amount. Its accountant has suggested becoming a public limited company (plc) and selling shares on the stock exchange. Aisha and Dev would then together own only 45% of the shares. Dev is worried that new shareholders would expect a dividend every year and would vote on major decisions. Aisha estimates that selling in Europe would take at least four years to make a profit.

Halvern Lighting Ltd, 2024	£
Revenue	3 200 000
Total costs	2 560 000

The company pays 30% of its net profit to its shareholders as dividends.

Fernhollow Fitness Ltd

Fernhollow Fitness Ltd operates 42 gyms in towns and cities across the UK. It was founded in 2011 by Dara Finch, who owns 70% of the shares; the remaining shares are owned by three members of her family. Membership costs £29 per month and the business has 186 000 members and 900 employees.

Fernhollow Fitness wants to open 30 more gyms over the next four years at a total cost of £45 million. Last year it made a net profit of £9 million and it has £12 million of retained profit.

Dara has been advised to turn Fernhollow Fitness into a public limited company (plc) by selling shares on the stock exchange. Her bank has also offered a £45 million loan repayable over ten years. Two competitors have recently opened budget gyms charging £16 per month in towns where Fernhollow Fitness already operates.