Business Structures

Question 1

What is limited liability

Answer 1

The shareholders of the company are not responsible for the debts for entities should it fail. Personal assets will not be sold to repay the entity debts.

Question 2

What is unlimited liability

Answer 2

The owners of the business could be responsible for the debt of the entity should it fail. Personal assets maybe sold to repay the entity’s debts

Question 3

What is the difference between business entities and incorporated entities

Answer 3

Incorporated
・Members are not owners
・Profits are not distributed to members
・Accumulated funds for the future not equity of the owner
・No drawings
・Fundraising for raising cash
・It closes down funds, not distributed to members

Question 4

What is two advantages of a Sole Trader

Answer 4

・All profits for the owner
・Flexible working hours
・Own boss

Question 5

What is two advantages of a Partnership

Answer 5

・Greater access capital than to Sole Propitiator
・sharing skills, risk, work loads
・Partners liable for tax on profit as opposed to a company which is taxed on profits and shareholders taxed on dividends

Question 6

What is two advantages of a Limited Liability Company

Answer 6

・All shareholders have limited liability
・A large number of people can purchase the shares
・Additional shares can be issued in order to raise capital and expand the company

Question 7

What are two disadvantages of Sole Trader

Answer 7

・Owner takes all responsibility/risk
・Limited access to funds for expansion
・Operating problems whenever owner is sick or on holiday
・Unlimited Liability

Question 8

What are two disadvantages of Partnership

Answer 8

・Share profits
・Partners have joint & several liability, therefore one partner’s action can bind all other partners
・Unlimited liability
・Limited life on the death or retirement of a partner, the partner ship is dissolved

Question 9

What are two disadvantages of Limited Liability Company

Answer 9

・Legal issues when being establishing
・Cannot sell shares to public
・Public is able to view accounts
・Difficult to transfer shares, all shareholders have to agree

Question 10

Which two entities must have their financial statements audited

Answer 10

Limited liability company and incorporated organizations. This is a disadvantage as it costs more money for an auditor

Question 11

State 2-3 sources of finance for Sole Trader

Answer 11

・Personal money
・Bank loans
・Family Contribution

Question 12

State 2-3 sources of finance for Partnership

Answer 12

・Personal money

・Bank loans

Question 13

State 2-3 sources of finance for Limited Liability Company

Answer 13

・Bank loans

・Debentures

Question 14

State 2-3 sources of finance for Incorporated Organisation

Answer 14

・Fundraising
・Subscriptions
・Debentures
・loans

Question 15

What is the lifetime of Sole Trader

Answer 15

Business ceases upon exit to owner

Question 16

What is the lifetime of Partnership

Answer 16

Partnership ceases upon exit of partners

Question 17

What is the lifetime of Limited Liability Company

Answer 17

Company continues indefinitely upon exit of members

Question 18

What is the lifetime of Incorporated Organisation

Answer 18

Organisation ceases upon exit of members

Question 19

What is 2 advantages of Incorporated Organsiations

Answer 19

・Limited 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