4.1a Limited or unlimited Flashcards
What is limited liability?
The level of risk is limited to the amount of money that has been invested or promised as an investment in the business.
What is unlimited liability
The level of risk goes beyond the amount invested. This means personal assets of the business owner could be used to pay any debts.
What does incorporated mean?
A business is registered as a company.
The law sees the owner and the business separately.
What does unincorporated mean?
A business that is not registered as a company.
The law sees the owner and the business as one.
Advantages of limited liability
- personal possessions are protected
- they are independent
- they do not trade on the stock exchange
Disadvantages of limited liability
- you can only have a maximum of 50 people
- there are higher costs required
Advantages of unlimited liability
- costs less
- more confidential as accounts do not need to be made public
Disadvantages of unlimited liability
- personal assets are at risk
- they are legally responsible for any debts
- more difficult to succeed
Who is limited liability an advantage to?
Limited liability is advantage to the shareholders.
Who has legal responsibility to settle debts in a company with unlimited liability?
The owners have legal responsibility to settle debts.
What are assets
Property, such as a house or car
What is the meaning of unincorporated
A business that is not registered as a company, so the owners and business are the same body in the eyes of the law
What is a sole trader?
A sole trader is when one person sets up the business on their own
Are partners in a limited liability liable for debts
No they are not liable for the debts that the business has to pay
Concept of limited liability
Limited liability exists when an entrepreneurs risk is limited to the amount they have invested or promised
