IGCSE Enterprise: Specimen Questions with Answers 8 - 9 of 49

Passage

Case Study -1

Starting a business in Haiti takes 12 procedures and more than three months. Formal registration of a company is so complicated that the process cannot be completed without using the services of third parties — lawyers and notaries. Company statutes are often drafted by an attorney, then need to be certified by a notary before being submitted for incorporation. The result is an additional cost burden for entrepreneurs trying to navigate the complex process to enter the formal sector. In New Zealand, by contrast, an entrepreneur can complete the entire process of company formation in just a few hours through a single online procedure. The burdensome nature of these entry regulations is surely one of many reasons underlying the fact that Haiti has far fewer registered companies relative to population size — only 4 per 100,000 people in 2012, compared with 1,020 per 100,000 people in New Zealand. Formalization has many benefits. Formally registered companies tend to have greater profits, investments, and productivity, while their employees benefit from social security and other legal protections. Yet, in many economies around the world, entrepreneurs continue to face excessively burdensome entry regulation. Formalizing a business may involve multiple interactions with government agencies and with third-party private professionals whose services are either required by law or desirable because of regulatory complexity.

Main Findings

  • Most of the cost of starting a business comes from the fees of third-party professionals such as lawyers and notaries.
  • Entrepreneurs use third-party services in business start-up mostly because the process is too complex.
  • Economies with greater third-party involvement in business incorporation tend to have more businesses operating in the informal sector. They also tend to have less accessible laws and regulations and less efficient systems of civil justice.
  • Notary services are used in business start-up in 76 of the 189 economies covered by Doing Business.
  • Latin America and the Caribbean has the largest share of economies where legal services are used in the start-up process.

Question 8 (7 of 12 Based on Passage)

Edit

Write in Short

Short Answer▾

When does a firm starts earning profit after registration?

Explanation

There is no fix time when a company will start earning profits. It is impossible to state an average time of profitability for a start-up company. For some business it can take two to three years while for others may be a year. A business starts earning profit when for the first time the company՚s revenue increases it total cost of production. Any point beyond the Break-Even Point marks the beginning of profit for the business. Profitability depends on the following factors-

  • The amount of capital involved in the business to create products and services.
  • Profitability depends on the expenses of the business including salary and payments to the investors.
  • Volume of sales by the business.
  • Cost incurred on marketing of the products or services also affects profits by increasing the revenue of the firm.

Question 9 (8 of 12 Based on Passage)

Edit

Write in Short

Short Answer▾

Formally registered companies tend to have greater profits, investments, and productivity, while their employees benefit from social security and other legal protections. Based on above statement answer the following-

What are the sources of finance for a new business?

Explanation

Major Sources of Finance for Start-Up Funding Are

  • Personal Investment: When starting a business an investor should use his own funds or loan against collateral assets. This build trust in the investors as it proves to them that the entrepreneur has a long-term commitment to the project.
  • Venture capital: Venture capitalists are looking for a business that is technology driven having a high growth potential in various sectors. The capital provider takes an equity interest in the company which promises result and involves high risk.
Venture Capital

Developed by: