1.4 Limated And Unlimited liability

Question 1

Limited liability

Answer 1

An investors liability/financial commitment is limited to the total amount invested or promised in share capital

An investors personal belongings are protected

Question 2

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

Question 3

Sole trader

Answer 3

A sole trader is an individual who runs and owns their own business

They have unlimited liability

Question 4

Advantages of sole trader

Answer 4

Cheap and easy to set up
You get to keep profits
Highly motivated
You are the boss

Question 5

Disadvantages of a sole trader

Answer 5

Unlimited liability
Limited sources of finance
Difficult to find cover when ill

Question 6

Partnership

Answer 6

Is where two or more people run the business, each person is equally responsible for debts incurred, and each partner takes a share of the profits

Question 7

Advantages of partnerships

Answer 7

Share decision making 
More people contributing finance
Each partner may have different skills 
Shared risk
Accounts cannot be seen by competitors

Question 8

Disadvantages of partnerships

Answer 8

Unlimited liability
Profits are shares between all partners
Can be slow and cause disagreements
All partners are liable for decisions

Question 9

Private limited companies

Answer 9

The owners and the company are separate legal entities
The company’s finance are separate from the owners
Shareholders are owners

Question 10

Franchising

Answer 10

A franchise is when one business gives another person or business the right to trade using its name and to sell its products or provide its services