28. Liability

Question 1

Advantages of unlimited liability

Answer 1

• It is easier to raise finance
• Business is seen more trustworthy

Question 2

Disadvantages of unlimited liability

Answer 2

• Owners are exposed financially to the failure of their bussinesses
• Owners are liable for any unlawful acts comitted by the owners or the employees.
• Owners may be financial liable if sued succesfully by other stakeholders, such as customers, employees or suppliers

Question 3

Advantages of limited liability

Answer 3

• Financial liability is limited to the amount of money they invested in the business
• Shareholders also have protection from legal claims on the business
• Easier to raise large amount of money from investors

Question 4

Disadvantages of limited liability

Answer 4

• In some cases owners of small limited companies are required to give personal guarantees of the company’s debts to those lending to the company

Question 5

Choosing apropriate finance:

Answer 5

• Wheather short-term or long term finance is needed
• The financial position of the business
• Cost
• The legal status of the business

Question 6

Finance appropriate for unlimited liability businesses:

Answer 6

• Personal savings
• Retained profits
• Mortgage
• Unsecured bank loans
• Peer-to-peer lending
• Crowd funding
• Bank overdraft
• Grants

Question 7

Finance appropriate for limited liability businesses:

Answer 7

• Share capital
• Debentures
• Retained profit
• Venture ccapitalists
• Business angels
• Other sources

Question 8

collateral

Answer 8

An asset that might be sold to pay a lender when a loan cannot be repaid

Question 9

Incorporated business

Answer 9

A business model in which the business and the owner(s) have separate legal identities

Question 10

Limited liability

Answer 10

A legal status which means that a business owner is only liable for the original amount of money invested in the business

Question 11

Long-term finance

Answer 11

Money borrowed for more than 1 year

Question 12

Rights issue

Answer 12

Issuing new shares to existing shareholders at a discount

Question 13

Short-term borrowing

Answer 13

Money borrowed for 12 months or less

Question 14

undercapitalised

Answer 14

A business with insuficient capital to run efectively

Question 15

Unincorportaed business

Answer 15

A business model in which there is no legal difference betwen the owner(s) and the business

Question 16

unlimited liability

Answer 16

A legal status which means that the owner of a business is personally liable for all business debts