Business Structures

Question 1

What is limited liability?

Answer 1

Shareholders/Members of the ‘entity’ are not responsible for the debt of the entity should it fail. Personal assets will not be sold to repay entity debts.

Question 2

What is unlimited liability?

Answer 2

Owners/Partners/Members of the ‘entity’ could be responsible for debts of the business should it fail. Personal assets may be sold to repay 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 future, not equity of owner
• No drawings
• Fundraising to acquire money
• If it closes down funds aren’t distributed to members

Question 4

What are two advantages of being a sole trader?

Answer 4

• Can be your own boss

- Can choose how long and when to work

Question 5

What are two advantages of being in a partnership?

Answer 5

• Shared responsibility

- Partners motivated due to sharing of profits

Question 6

What are two advantages of being 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 are two disadvantages of being a sole trader?

Answer 7

• Unlimited liability – sole traders are not a separate entity
• Often need to take advice from outside the business

Question 8

What are two disadvantages of being in a partnership?

Answer 8

• Unlimited liability

- If business fails, partners will be forced to contribute their personal resources

Question 9

What are two disadvantages of a limited liability company?

Answer 9

• Cannot sell shares to public

- Public is able to view accounts

Question 10

State 2-3 types of finance for sole traders

Answer 10

Bank loans, personal finances

Question 11

State 2-3 types of finance for partnerships

Answer 11

Bank loans, personal finances

Question 12

State 2-3 types of finance for limited liability companies

Answer 12

Debentures, bank loans

Question 13

State 2-3 types of finance for incorporated organisations

Answer 13

Fundraising, debentures, subscriptions

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

Business continues indefinitely upon exit of shareholder(s)

Question 17

What is the lifetime of an incorporated organisation?

Answer 17

Business continues indefinitely upon exit of members

Question 18

What is the lifetime of an unincorporated organisation?

Answer 18

Organisation ceases upon exit of members

Question 19

Which two entities must have their financial statements audited?

Answer 19

Limited liability companies and incorporated organisation. This is a disadvantage as it costs more money for an audit