2.1.3 Liability

Question 1

Liability

Answer 1

A companies financial debt or obligations that arise during the course of a business

Question 2

Limited liability

Answer 2

An investors liability / financial commitment is limited to the total amount invested or promised in share capital. Investors personal belongings are protected

Question 3

Unlimited liability

Answer 3

The owners of the business are responsible for the total amount of debt of the business. The owner may lose personal belongings if value of these is needed to cover debts of business HIGH RISK

Question 4

Creditors

Answer 4

Is owned money, either by a business of an individual for providing supplier or finance

Question 5

Debtors

Answer 5

A person or business that owes money to a creditor

Question 6

What liability to sole traders and partnerships have

Answer 6

Unlimited liability - they can set up a business without meeting any special legal requirements. Owners have legal duty to repay all debts and can have all personal possessions seized to pay debts

Question 7

What are limited companies

Answer 7

Legal entities set up under company law.

Liability limited to business itself. Required by law to have ‘Ltd’ if private company or “PLC’ if public company

Question 8

What type of businesses are suited as private limited companies

Answer 8

Small and medium sized enterprises and family businesses because have 50 shareholders and can’t be brought or sold without consent of other shareholders

Question 9

Implications of limited company

Answer 9

If company becomes insolvent, suppliers may not get paid and customers may lose deposits therefore employees may find themselves redundant, suppliers and customers may lose large sums each years, to avoid risks most lenders create guarantees

Question 10

Finance appropriate for limited companies

Answer 10

Share capital, - ideal for big businesses using reputations to raise large sums of money