Business Structures

Question 1

What is Limited Liability?

Answer 1

The shareholders/members of the company/organisation are not responsible for the debts of the entity should it fail. Personal assets will not be sold to repay the entities debts. (edit for different entities-limited liability company, incorporated organisation)

Question 2

What is Unlimited Liability?

Answer 2

The owners/partners/members of the business/partnership/organisation could be responsible for the debt of the entity should it fail. Personal assets maybe sold to repay the entities debts.
(edit for different entities-sole trader, partnership and unincorporated organisations)

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 future not equity of owner
• No drawings
• Fundraising for raising cash
• If it closes down funds are not distributed to members

Question 4

What are two advantages of a sole trader?

Answer 4

• Can be your own boss

- Few legal requirements to set up

Question 5

What are two disadvantages of a sole trader?

Answer 5

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

Question 6

What are two advantages of a partnership?

Answer 6

• Increased levels of capital

- Partners motivated due to sharing of profits

Question 7

What are two disadvantages of a partnership?

Answer 7

• Unlimited Liability

- Partners can disagree on important decisions. It can be time consuming to reach a consensus.

Question 8

What are two advantages of a limited liability company?

Answer 8

• All shareholders have limited liability

- A large number of people can purchase the shares

Question 9

What are two disadvantages of a limited liability company?

Answer 9

• Legal issues when being establishing

- Public is able to view accounts

Question 10

State 2-3 sources of finance for a sole trader?

Answer 10

• Personal money

- Bank loans

Question 11

State 2-3 sources of finance for a partnership?

Answer 11

• Personal money

- Bank loans

Question 12

State 2-3 sources of finance for a limited liability company?

Answer 12

• Bank loans

- Debentures

Question 13

State 2-3 sources of finance for a incorporated organisation?

Answer 13

• Fundraising
• Subscriptions
• Debentures
• Loans

Question 14

What is the lifetime of a sole trader?

Answer 14

Business ceases upon exit of owner.

Question 15

What is the lifetime of a partnership?

Answer 15

Partnership ceases upon exit of partner(s).

Question 16

What is the lifetime of a limited liability company?

Answer 16

Company continues indefinitely upon exit of shareholder(s).

Question 17

What is the lifetime of a incorporated organisation?

Answer 17

Organisation continues indefinitely upon exit of members.

Question 18

What is the lifetime of a unincorporated organisation?

Answer 18

Organisation ceases upon exit of member(s).

Question 19

Which two entities must have their financial statements audited?

Answer 19

-Limited liability companies
-Incorporated organisations
This is a disadvantage as it costs more money for an auditor.

Question 20

What is 2 advantages of Incorporated Organisations?

Answer 20

• Limited Liability

- Unlimited Lifetime

Question 21

What is 2 disadvantages of Incorporated Organisations?

Answer 21

• Expensive to set up and run

- Must have 15 plus members and that can be difficult for small clubs