2.1.3 Liability

Question 1

What is unlimited liability?

Answer 1

Owners are fully responsible for all debts of the business

This means that personal assets are at risk if the business incurs debts.

Question 2

What is the legal distinction between owners and businesses under unlimited liability?

Answer 2

No legal distinction between owners and business so personal assets are at risk

Owners are personally liable for the debts and obligations of the business.

Question 3

Are owners legally responsible for unlawful acts committed by the business under unlimited liability?

Answer 3

Yes

Owners can be held accountable for any illegal actions taken by the business.

Question 4

What are some sources of appropriate finance for a business?

Answer 4

• Debentures
• Retained profit
• Share capital
• Venture capitalists
• Business angels

These sources can provide the necessary funds for business operations and growth.

Question 5

What does limited liability mean?

Answer 5

Owners can only lose the original amount they invested

This protects personal assets from being used to pay business debts.

Question 6

How are companies regarded in terms of legal entity under limited liability?

Answer 6

Companies are considered separate legal entities to the business

This means the company itself is responsible for its debts not the owners personal assets

Question 7

What happens to owners if the company fails under limited liability?

Answer 7

Owners would lose their investment

however Personal assets are not at risk in this case.

Question 8

What are some additional sources of appropriate finance for a business?

Answer 8

• Personal savings
• Retained profit
• Unsecured loan
• Overdraft
• Mortgage
• Grants
• Crowdfunding
• Peer-to-peer lending
• Leasing
• Trade credit

These options provide various ways to fund business activities.

Question 9

what is a debenture

Answer 9

. A debenture is a form of bond or long-term loan which is issued by the company. The debenture typically carries a fixed rate of interest over the course of the loan.

Question 10

what type of finance is debentures

Answer 10

Debentures are a long-term source of finance

Question 11

what is an unsecured loan

Answer 11

a loan provided to a company where no physical asset (like property or equipment) is used as collateral to secure the debt.

instead, the lender relies solely on the borrower’s creditworthiness and financial history to approve the loan

Question 12

advantage of unsecured loan for borrowers

Answer 12

potentially faster and more accessible for businesses with limited assets