2.1.3 - Liability

Question 1

What does it mean to have limited liability?

Answer 1

Where a business owner is only liable (responsible) for their original investment, should they fall into debt. The business and the owner have separate legal identities

Question 2

What does it mean to have unlimited liability?

Answer 2

Unlimited liability is if a business has debts the owner must ay even if this means selling their own possessions to find the money

Question 3

What are the appropriate finance sources for an unlimited liability business?

Answer 3

• Business loan
• Private investors
• Credit cards
• Crowd funding
• Trade credit
• Owners savings
• Overdraft

Question 4

What are the appropriate finance sources for a limited liability business?

Answer 4

• Retained profits
• Sale of assets
• Debentures (loan on a specific item)
• Ordinary and preference shares
• Hire purchase and leasing
• Trade credit
• Government grants
• Venture capital

Question 5

What are the implications of limited liability?

Answer 5

• Owner and business have separate legal identities so can sue or be sued separately
• The owner and the business can own separate assets
• The business can now sell parts of the business called shares to shareholders
• Their is protection of the owners personal savings and assets, the owner cannot be made to sell their personal possessions to pay the debts of the business off

Question 6

What are the implications of unlimited liability?

Answer 6

• Sole trader partners may have to sell their own assets to pay the debts of in the business
• They are unable to sell shares in the business
• They may be able to secure finance due to the fact that they are demonstrating to a bank that they are prepared to risk their own finances on the business

Question 7

What is a sole trader?

Answer 7

Running the business on their own

Question 8

What is a partnership?

Answer 8

2-50 people running the business

Question 9

What is a private limited company (ltd)?

Answer 9

Company that sells shares privately

Question 10

What is a public limited company (plc)?

Answer 10

A company that sells shares publicly