Business Structures

Question 1

What is limited liability?

Answer 1

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

Question 2

What is unlimited liability?

Answer 2

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

Question 3

What is the difference between business entities and incorporated entities?

Answer 3

Members are not owners. Whereas businesses are.

Members cannot get profit. Whereas businesses can.

Question 4

What are 2 advantages of a sole trader?

Answer 4

• All profits to the owner
• Flexible working hours
• Own boss

Any two of three

Question 5

What are 2 advantages of a partnership?

Answer 5

• Greater access to capital than a sole trader
• Sharing skills, risk,workload
• Partners a liable for tax on profits as opposed to a company which is taxed on profits and shareholders taxed on dividends

Question 6

What are 2 advantages of a limited liability company?

Answer 6

• Limited liability
• Has perpetual succesion
• Large amount of capital can be raised through shared/debentures
• Separation of ownership from day to day management of business
• Can borrow by way of debentures

Question 7

What are 2 disadvantages of a 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 2 disadvantages of partnership?

Answer 8

• Share profits
• Partners have joint and several liability, therefore one partners action can bind all other partners
• Unlimited liability
• Limited liability on the death or retirement of a partner, the partnership is dissolved

Question 9

What are 2 disadvantages of a limited liability company?

Answer 9

• Expensive set up costs
• Strict legal/reporting requirements
• Company profits are taxed and the shareholders dividends are also taxed (double taxation)

Question 10

Which two entities must have their financial statements audited?

Answer 10

-Limited liability companies
-Incorporated organisation
This is a disadvantage as it costs more money for an audit

Question 11

State 2-3 sources of finance for a sole trader

Answer 11

Capital-owners, Revenue from sales of goods/services, Accounts payable, Loans from banks

Question 12

State 2-3 sources of finance for a partnership

Answer 12

Partner’s capital, Revenue from sales of goods/services, Accounts payable, Advance from partners, loan from banks

Question 13

State 2-3 sources of finance for a Limited Liability Company

Answer 13

Share Capital, Revenue from sales of goods and services, Accounts Payable, Loans from banks, Debentures

Question 14

State 2-3 sources of finance for a Incorporated Organization

Answer 14

Membership subscriptions, Fundraising, Donations, Grants, Loans from Banks, Debenture

Question 15

What is the lifetime of a sole trader

Answer 15

The business will cease immediately if the sole trader dies

Question 16

What is the lifetime of a partnership

Answer 16

The partnership will cease

Question 17

What is the lifetime of a limited liability company

Answer 17

The company continues indefinitely

Question 18

What is the lifetime of an incorporated organisation

Answer 18

The organization continues indefinitely

Question 19

What is 2 advantages of Incorporated Organsiations Ltd Liability, Unlimited Lifetime, Greater access to finance

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