E 2.1.3 Liability*

Question 1

liability definition

Answer 1

the legal responsibility to pay money owed by a business

Question 2

limited liability definition

Answer 2

a legal status that means that shareholders can only loose the original amount they invested in a business

Question 3

unlimited liability definition

Answer 3

a legal status which means that business owners are liable for all business debts

Question 4

+&- of limited liability

Answer 4

+ encourages investors to risk their money in new and growing businesses because the most they can loose is the money they invested- not personal belonging.
- a limited liability would have to sacrifice a certain amount of profit, known as a dividend, proportionate to the shares it has issues and may have to give shareholders a say in how the business is run.

Question 5

+&- of unlimited liability

Answer 5

• they could be forced to sell personal assets like their house to sell of these debts, if the owner can not pay back these debts they can be made personally bankrupt. - this is why running a business as a partnership or a sole trader can be risky, because the owners have no protection of their personal assets in the event that something goes wrong.
  + it means that businesses will pay all its profits to its owners and the owners have full control over decisions that are made, making the owners of the business more motivated to control their own destiny.

Question 6

private business organisations

Answer 6

unlimited lability businesses— sole traders, partnerships
limited liability businesses— private limited company (owned by a few shareholders), public limited company, (owned by many shareholders)