2.1.3 Liability

Question 1

What is limited liability?
(LTD

Answer 1

Responsibility for debt is limited to company’s assets (owners personal asset are protected)

-private limited company and public limited companies

Question 2

What is unlimited liability?

Answer 2

If a business gets into debt the owner will lose all investments and personal assets (personally liable)

-sole trader, partnership, unincorporated companies

Question 3

What are the pros of limited liability?

Answer 3

-Attracts investors by reducing the risk of start-up

-Pay lower tax (cooperation 20%) so can use extra cash to grow business

Question 4

What are the cons of limited liability?

Answer 4

-Increased legal obligations To ensure the business complies with regulations which is time consuming affecting productivity and growth

Question 5

What are the pros of unlimited liability?

Answer 5

owners have full control of decision making without needing to consult shareholders

Question 6

What are the cons of unlimited liability?

Answer 6

owners may be cautious and hesitant ti take risks but they may ne necessary for growth

Question 7

Which finance is appropriate for limited liability?

Answer 7

Generally external, some nternal finance

Question 8

Which finance is appropriate for unlimited liability?

Answer 8

Generally internal savings

Question 9

Shares? Limited and unlimited liability

Answer 9

limied- can raise share capital (can sell shares to public)

Unliimited- can’t sell shares (as there’s no legal seperation from the trader and the business)