Chapter 28- Liability Flashcards

1
Q

Unlimited liability

A

A business model where the owners are liable for all business debts – there is no legal difference between the owners and the business

  • Business owners with unlimited liability are exposed financially to the failure of their business – if their business collapses while owing money to external parties, such as banks, suppliers and the tax authorities, the owners will have to meet these debts from their personal recourses
  • Owners of businesses with unlimited liability are also liable for any
    unlawful acts committed by the owners or the employees
  • Businesses with unlimited liability find it easier to raise finance, this is
    because lenders will be reimbursed if a business defaults – unlimited
    liability businesses are often also seen as more credible

Appropriate finance:

  • Personal finance
  • Mortgage
  • Unsecured bank loans
  • Peer-peer
  • Grants
  • Crowd funding
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2
Q

Limited liability

A

A legal status that means that shareholders can only lose the amount originally inputted to the business

  • The main advantage is that the owners of businesses with limited liability
    are shareholders – the main advantage of this is that shareholders’
    financial liability is limited to the amount of money they invested in the
    business
  • If a limited company collapses, the owners’ private assets are fully
    protected – shareholders cannot be legally forced to sell personal assets
    to meet the business’s debts.
  • Because shareholder’s private assets are protected, limited companies
    may find it easier to raise larger amount of money from investors – as a
    result investors are more willing to buy shared in limited companies
    because they know precisely the extent of their liability is limited to the size
    of their investment
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3
Q

Collateral

A

An asset that might be sold to pay a lender when a loan cannot be repaid

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4
Q

Incorporated business

A

A business model in which the business and the owners have a separate legal identity

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5
Q

Long term finance

A

money borrowed for more than one year

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6
Q

Right issue

A

issuing new shares to existing shareholders at a discount

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7
Q

Unincorporated business

A

A business where the business and the owners have the same legal identity

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