2.1.3 liability Flashcards
What is unlimited liability?
A legal status where the business owners are liable for the business debts. They are unincorporated businesses where there are no legal differences.
What does unlimited liability mean for the business?
Are exposed financially to the failure of the business because owners need to meet the business debts.
If there is not enough, they are forced to sell private assets.
They are also liable for unlawful acts committed and are financially liable if they are sued by stakeholders.
However, they find it easier to raise finance as it is seen to be creditable.
What sources of finance have unlimited liability?
Personal savings
Retained profit
Mortgage
Unsecured loans
P2P funding
Crowdfunding
Overdrafts
Grants
What is limited liability?
A legal status in which shareholders can only lose the original amount they have invested into the business. They are incorporated business where there are separate legal identities.
What does limited liability mean for the business?
The shareholder’s liability is limited to the amount invested.
This is a fixed sum and is equal to the amount.
If collapsed, private assets are protected.
They have protection from legal claims because they have separate legal identities.
What sources of finance have limited liability?
Share capital
Debentures
Retained Profit
Venture Capital
Business angels
