2.1.3 Liability

Question 1

Definition of limited liability

Answer 1

A business owner is only liable for their original investments should the business fall into debt, their personal possessions are not at risk

Question 2

Definition of unlimited liability

Answer 2

If a business has debts, the owner must pay, even if this means selling their own possessions to get the money

Question 3

What are the 2 main business forms that have unlimited liability?

Answer 3

1. Sole traders

2. Partnerships

Question 4

What are the implications of unlimited liability?

Answer 4

• personal assets are at risk

- business and owner are seen as one legal entity, so are equally liable for the debts

Question 5

What are the 2 forms of limited liability businesses?

Answer 5

1. Private limited company (ltd)

2. Public limited company (plc)

Question 6

What are the implications of limited liability?

Answer 6

• owner and business have separate legal identities so can be sued separately
• owner and business can own separate assets
• no protection of owners personal savings + assets

Question 7

What are the suitable types of finance for UNLIMITED liability businesses? (Sole traders + partnerships)

Answer 7

• loans from banks
• angels
• credit cards
• crowd funding
• trade credit
• owner savings
• overdraft

Question 8

What are the types of finance suitable for a LIMITED liability business? (ltd and plc)

Answer 8

• retained profit
• sale of assets
• share issues
• government grants
• venture capital