2.1.3 - LIABILITY

Question 1

What is Limited Liability?

2 examples

Answer 1

there’s a LEGAL SEPERATION between the SHAREHOLDERS/OWNERS and the FIRM

e.g. PUBLIC LIMITED COMPANY (PLC) , PRIVATE LIMITED COMPANY (LTD)

SHAREHOLDERS personal ASSETS are NOT at RISK

Question 2

What is Unlimited Liability?

Answer 2

There is NO LEGAL SEPERATION between the OWNERS and the BUSINESS

e.g. SOLE TRADERS, PARTNERSHIPS

OWNER is RESPONSIBLE for all the DEBTS of the firm

Question 3

What are 3 ADVANATGES and 1 DISADVANTAGE of a PRIVATE LIMITED COMPANY

Answer 3

+ owners have LIMITED LIABILITY
+ PROTECTS the business from OUTSIDE INFLUENCE
+ SHARES can be SOLD to RAISE MONEY
- other people could be able to view the business’ financial information

Question 4

What are 3 ADVANTAGES and 2 DISADVANTAGES of a PUBLIC LIMITED COMPANY?

Answer 4

+ BETTER ACCESS to CAPITAL
+ LIQUIDITY - shareholders able to BUY and SELL their SHARES on STOCK EXCHANGE
+ to give a company a more PRESTIGIOUS PROFILE

• GREATER PUBLIC SCRUTINY
• once on stock exchange, firm LIKELY to have much LARGER NUMBER of EXTERNAL SHAREHOLDERS

Question 5

What is a SOLE TRADER?

Answer 5

an INDIVIDUAL OWNING their own business

Question 6

What are 2 ADVANTAGES and 2 DISADVANTAGES of SOLE TRADERS

Answer 6

+ SIMPLE to RUN - OWNER has COMPLETE CONTROL over DECISION-making
+ QUICK and EASY to SET UP

• UNLIMITED LIABILITY
• HARDER to RAISE FINANCE

Question 7

What is a Partnership?

Answer 7

where there are 2 OR MORE OWNERS

Question 8

What are 2 ADVANTAGES and 3 DISADVANTAGES of PARTNERSHIPS?

Answer 8

+ SHARED RESPONSIBILITY for DEBT by the owners
+ SHARED DECISION MAKING by the owners

• have to SHARE the PROFITS
• PROBLEMS if PARTNERS DISAGREE
• UNLIMITED LIABILITY