Clarification details
Updated December 2019. This document has been updated in its entirety to address new issues that have arisen from moderation.
The standard requires students to identify a business enterprise within the primary sector, and explain its current business structure and a suitable alternative. Examples of structures are given in Explanatory Note 3.
Students need to assess the existing structure in terms of its suitability for meeting the enterprise’s strategic needs. This should involve consideration of short and long-term implications.
For example, Fonterra’s co-operative structure could be evaluated in terms of its goals, types of shareholders, distribution of earnings, governance and capital needs. A small kiwifruit orchard’s partnership structure could be evaluated in terms of its growth strategy, succession planning, and exposure to risk.
In comparing the current structure with an appropriate alternative, students need to consider the business size, the ownership base, and the ability to maintain or grow the enterprise. It is expected that students would recognise that sole trader and partnership structures are unlikely to be appropriate alternatives to companies.
Comparisons should focus on aspects such as access to capital, decision-making, reporting requirements and tax obligations.
Accurate business language should be used. For example, students would refer to the owners of a trust as trustees or beneficiaries, and the owners of companies as shareholders. The distinction between private and public companies should also be made if these are discussed as current or alternative business structures.
Merit and Excellence
At Merit, the student would thoroughly explain the contrasts between the two business structures. They would then recommend and justify the option that in their opinion is most appropriate for meeting the strategic needs of the enterprise.
Excellence requires an evaluation of the recommended business structure’s impact on the business. Short and long-term implications of the structure should be considered. For example, in recommending that a trust might be most appropriate for a large family-owned farm holding, the student would discuss restraints on disposing of land should capital need to be raised in the future.