Business Structures

Question 1

What are 2 advantages of a Sole Trader?

Answer 1

1. Easy to start and run.

2. No registration or formal documentation is required.

Question 2

What are 2 disadvantages of a Sole Trader?

Answer 2

1. Owners have unlimited liability for all business taxes and debts, putting personal assets at risk.
2. Sole Traders can lack credibility in the marketplace.

Question 3

What are 2 advantages of a Partnership?

Answer 3

1. No registration is required to start a partnership.

2. Expertise is shared.

Question 4

What are 2 disadvantages of a Partnership?

Answer 4

1. Partners may be liable for debts incurred by other partners.
2. Control is shared.

Question 5

What are 2 advantages of a Company?

Answer 5

1. More credibility in the marketplace.

2. Easier to attract funds and investments.

Question 6

What are 2 disadvantages of a Company?

Answer 6

1. Directors need to clearly understand their responsibilities.
2. Limited liability advantages are often eroded in practice by the need to provide personal guarantees to lenders or creditors.

Question 7

What is the definition of unlimited liability?

Answer 7

If the business fails, the personal assets of the owner can be used to pay business debts.

Question 8

What is the definition of limited liability?

Answer 8

If the business fails the personal assets of the owner cannot be used to pay business debts.