2.1.3 Liability

Question 1

Describe limited liability

Answer 1

• An investor’s liability/financial commitment is limited to the total amount invested or promised in share capital
• An investor’s personal belongings beyond this venture are protected

Question 2

Describe unlimited liability

Answer 2

• The owners of a business are responsible for the total amount of debt of the business
• The owner may lose their personal belongings, e.g. home and cars, if the value of these is needed to cover the debts of the business