2.1.3 Liability

Question 1

What is limited liability?

Answer 1

Limited liability means that a business owner is only liable for their original investment should the business fall into debt, their personal possessions are not at risk.

Question 2

What is unlimited liability?

Answer 2

Unlimited liability means that If a business has debts the owner must pay even if this means selling their own possessions to find 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

• The owner may have to sell personal assets during financial troubles.
• The business and owner are equally liable for debts.

Question 5

What are the two 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

• The owner and the business have separate legal identities so can sue or be sued separately
• The owner and the business can own separate assets
• The business can now sell parts of the business called shares to shareholders
• There is protection of the owners personal savings

Question 7

What types of finance is suitable for an unlimited liability business?

Answer 7

• Business loans from a bank
• Private investors
• Credit cards from a bank
• Crowd funding from websites
• Take credit from suppliers
• Owners savings
• Overdraft from the bank

Question 8

What types of finance is suitable for a limited liability business?

Answer 8

• Retained profit
• Sale of assets
• Share issues
• Government grants
• Venture capital