Business Structures

Question 1

What is Limited Liability

Answer 1

The Owners of the ENTITY could be responsible for the debt of the entity should it fail.

Personal assets maybe sold to repay the entity’s debts

NOTE use members for Incorporated.

Question 2

What is Unlimited Liability

Answer 2

The Owner of the unincorporated ENTITY are not responsible for the debt of the entity should it fail.

Personal assets will not be sold to repay the entities debts

NOTE use members for Unincorporated.

Question 3

What is the difference between business entities and incorporated entities

Answer 3

• Incorporated have members not owners.
• The profits are not distributed to members.
• Accumulated funds for future not Equity of owner.
• Incorporated have no drawings.

Question 4

What is 2 advantages of a Sole Trader

Answer 4

• Can be your own Boss.

- Low cost to set up.

Question 5

What is 2 advantages of a Partnership

Answer 5

• Increased levels of capital.

- Shared responsibility.

Question 6

What is 2 advantages of a Limited Liability Company

Answer 6

• All shareholders have limited liability.

- Additional shares can be issued in order to raise capital and expand the company.

Question 7

What is 2 Disadvantages of a Sole Trader

Answer 7

• Unlimited liability – sole traders are not a separate entity.
• Sources of finance are often limited which can make expansion difficult.

Question 8

What is 2 Disadvantages of a Partnership

Answer 8

• If business fails, partners will be forced to contribute their personal resources.
• Partners can suffer if one partner is inefficient or dishonest.

Question 9

What is 2 Disadvantages of a Limited Liability Comapny

Answer 9

• Legal issues when being establishing.

- Cannot sell shares to public.

Question 10

State 2-3 Sources of finance for a Sole Trader

Answer 10

Limited to the amount of money Sole Trader has. and Bank loans.

Question 11

Which 2 entities must have their financial statements audited

Answer 11

• Limited Liability Companies
• Incorporated Organisations
• This is a disadvantage as it costs more money for an audit.

Question 12

State 2-3 Sources of finance for a Partnership

Answer 12

Limited across all the partners money and Bank loans

Question 13

State 2-3 Sources of finance for a Limited Liability Comapny

Answer 13

Greater access to infant. Debentures

Question 14

State 2-3 Sources of finance for a Incorporated Organisation

Answer 14

Members Contributions, Fundraising, Subscriptions, loans and Debentures

Question 15

What is the lifetime of a Sole Trader

Answer 15

The business will end when the sole trader dies.

Question 16

What is the lifetime of Partnership

Answer 16

The business will end when both partners die.

Question 17

What is the lifetime of Limited Liability Company

Answer 17

It is indefinate

Question 18

What is the lifetime of Incorporated Organisation

Answer 18

It is indefinate

Question 19

What is 2 advantages of Incorporated Organsiations

Answer 19

• Ltd Liability
• Unlimited Lifetime
• Greater access to finance

Question 20

What is 2 disadvantages of Incorporated Organisations

Answer 20

• expensive to set up and run
• must have 15 plus members and that can be difficult for small clubs
• complex management structure