2.1.3 Limited Liablility 💳 Flashcards
What is limited liability?
When shareholders are not liable for the debts of the business
This is because in the eye of the law shareholders and the business is seen as separate legal entities
Why are shareholders not responsible for the businesses debt in limited companies ?
This is because in the eye of the law shareholders and the business is seen as separate legal entities
What are LTD and PLC
Incorporated
What is unlimited liability?
When sole traders and partnerships are liable for the debt of the business
What do partnerships have for protection to the business debt ?
LLP - have a legal contract for protection
Person who has the most assets has to pay
What are 4 implications of limited liability?
Share holders have protection form business debt so business has to pay more
Courts may decide individuals form business are liable if crime is committed
Need adequate records
Owners of small limited companies are required to give personal guarantees of repayments to investors
What are 3 implications of unlimited liability?
Exposed financially to the failure of the business
Don’t have money ?- take away the possessions
Liable for any unlawful acts
What are 5 factors that influence the method of finance chosen by business ?
Whether it’s shot term or long term - need to know the financial position of the business
Lenders may be reluctant to offer finance - cost of borrowing rises
Types of expenditure - heavy capital ? - need to be funded long term
Cost- business like sources which are cheap
Legal status of business - if limited or unlimited
What is a rights issue ?
Issuing new shares to existing shareholders at a discount
What are debentures ?
A very high capital loan
What kind of business may use debenture ?
Why?
Public limited companies- long term
Debentures to not have any control over the business
What is undercapitalised ?
When a source of finance did not raise enough capital when setting up
Is personal savings for a limited or unlimited business ?
Unlimited
Is retained profit for a limited or unlimited business ?
Unlimited
Is mortgage for a limited or unlimited business ?
Unlimited
Is a insecure bank for a limited or unlimited business ?
Unlimited
Is peer to peer lending for a limited or unlimited business ?
Unlimited
Is bank overdraft for a limited or unlimited business ?
Unlimited
Is crowd funding for a limited or unlimited business ?
unlimited
Why is personal savings unlimited ?
It’s for a small business - available
Why is retained profit unlimited ?
Can be use if business survives and I’d established
But can be restrictive
Why is mortgage unlimited ?
Long term
But has to be paid back
Why is unsecure bank unlimited ?
Depends on financial climate at the time
Banks have tight criteria if their is a credit crunch
Why is crowd funding unlimited ?
Reliable
Owner has to cheap it individually- takes long for considering decision
Why is bank over draft unlimited ?
Has a limit
May have larger access if a bigger access
Why are Grants unlimited?
Provides a free source
But have to qualify
What is share capital limited ?
Capitals remain in the business if trading
But may have rights issues
Cheap and simple and gets good publicity
What is debentures limited ?
No interest in the business
Long term
What is Retained profit limited ?
No expectations
Can be used in the future
What is business angels investors limited ?
Invested in Earlier stage than venture capitalists
Hard to find
