Chapter 7- Choosing The Right Legal Structure

Question 0

What is unlimited liability?

Answer 0

Unlimited liability means that the owner of a business is liable for all debts of the business. Unlike limited it is a characteristic for unincorporated businesses.

Question 1

What is limited liability?

Answer 1

Limited liability means the liability of owner is limited to the fully paid up value of the share capital. This is a feature if incorporated businesses. It limits the liability of the shareholder encouraging more investments.

Question 2

Name the different types of legal structure

Answer 2

• Sole Trader
• Partnership
• LTD
• PLC

Question 3

What is a partnership?

Answer 3

This is when two or more people operate a business for the common goal of making profit

Question 4

What is LTD?

Answer 4

This is a small to medium sized business run by a family or small group of individuals who own it.

Question 5

What is a PLC?

Answer 5

This is a business with limited liability, a share capital of over £50,000 with at least two shareholders, two directors and a qualified company secretary.

Question 6

What are the disadvantages of PLC?

Answer 6

• Loss of control

- Continual Scrutiny

Question 7

What are the two functions of an entrepreneur?

Answer 7

Ownership & Control

Question 8

What is ownership?

Answer 8

Ownership is providing finance and therefore taking risk

Question 9

What is control?

Answer 9

Control is managing the organisation and making of decisions

Question 10

What is a not-for-profit business and what are it’s characteristics?

Answer 10

A not-for-profit business is a sector that include voluntary and community organisations. These types of businesses are usually non-governmental, with many us of volunteer staff in addition to paid exchanges.

Question 11

Name the factors that affect the choice of legal structure.

Answer 11

• The size of the business, and the level and type of investment required
• Need for limited liability
• Degree of control by owners