2.1.3 Liability

Question 1

What forms of business ownership have which type of liability?

Answer 1

• sole traders and partnerships have unlimited liability
• Other forms of business ownership like public limited company or private Limited company offer limited liability

Question 2

What is unlimited liability and what are the implications of it?

Answer 2

• so proprietors and partnership owners are fully responsible for all debts owed by the business
• Owners are also legally responsible for any unlawful acts committed by those connected to the business
  Implications:
• There is no legal distinction between owners with unlimited liability and the business
• As a result these business owners may have to use their own personal assets to pay debts or legal fees

Question 3

What is limited liability and what are the implications of it?

Answer 3

• owners/shareholders of private Limited companies and public limited companies can only lose the original amount. They invested in the business if it fails.
• Shareholders are not responsible for business debts
  -In most cases the shareholders cannot be held responsible for unlawful acts committed by those connected with the business
  Implications:
• Companies are incorporated and owners are considered a separate legal entity to the business
• This means if a company fails the owners would lose their investment/shares but would not have to use their assets to meet additional debts or legal fees

Question 4

What are the sources of finance for limited liability businesses?

Answer 4

Internal:
- Retained profit
- Share capital
- Debentures
Investors:
- Venture capitalists
- Business angels

Question 5

What are the sources of finance best for unlimited liability businesses?

Answer 5

Personal savings, retained profit, unsecured loan, overdraft, mortgage, trade credit, leasing,peer to peer lending , crowd funding, grants