Business Structures

Question 1

What is Limited Liability?

Answer 1

The Shareholders 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 debts. – Use Members for Incorporated Organisations

Question 2

What is Unlimited Liability?

Answer 2

Owners of the business could be responsible for the debts of the business should it fail. Personal assets may be sold to repay the entities debts. – Use Members for Unincorporated Organisations

Question 3

What is the difference between the business entities and Incorporated entities?

Answer 3

Incorporated Organisations:

• Members NOT Owners
• Profits are NOT distributed to members
• Accumulated funds for future NOT equity of Owner
• No drawing
• Fundraising for raising cash
• If closes down funds NOT distributed to members

Question 4

What are 2 advantages of a Sole Trader?

Answer 4

• All profits for the owner

- Flexible working hours

Question 5

What are 2 advantages of a Partnership?

Answer 5

• Greater access to Capital

- Sharing skills, risk, workload

Question 6

What are 2 advantages of a Limited Liability Company?

Answer 6

• Large amounts of Capital can be raised through selling shares
• Limited Liability

Question 7

What are 2 disadvantages of a Sole Trader?

Answer 7

• Owner takes all responsibility/risk

- Limited access to funds for expansion

Question 8

What are 2 disadvantages of a Partnership?

Answer 8

• Share profits

- Partners have joint liability, therefore one partner’s action can bind on all other partners

Question 9

What are 2 disadvantages of a Limited Liability Company?

Answer 9

• Expensive set up costs

- Strict legal/reporting requirements

Question 10

State 2-3 sources of Finance for a Sole Trader

Answer 10

• Revenue from sale of goods or services
• Accounts Payable
• Capital - Owners

Question 11

State 2-3 sources of Finance for a Partnership

Answer 11

• Partner’s Capital
• Accounts Payable
• Loans from Banks

Question 12

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

Answer 12

• Share Capital
• Debentures
• Accounts Payable

Question 13

State 2-3 sources of Finance for an Incorporated Organisation

Answer 13

• Fundraising
• Subscriptions
• Debentures
• Loans

Question 14

What is the Lifetime of a Sole Trader?

Answer 14

Finishes when Owner dies or winds the business up

Question 15

What is the Lifetime of a Partnership?

Answer 15

Finishes when a Partner dies or the Partnership dissolves

Question 16

What is the Lifetime of a Limited Liability Company?

Answer 16

Indefinite

Question 17

What is the Lifetime of an Incorporated Organisation?

Answer 17

Indefinite. Continues even though members come and go

Question 18

What is the Lifetime of an Unincorporated Organisation?

Answer 18

Indefinite. Continues even though members come and go

Question 19

Which two entities MUST have their Financial Statements audited?

Answer 19

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

Question 20

What are 2 advantages of an Incorporated Organisation?

Answer 20

• Limited Liability

- Unlimited Lifetime

Question 21

What are 2 disadvantages of and Incorporated Organisation?

Answer 21

• Expensive to setup and run
• 15+ members
• Complete Management Structure