Choosing the right legal structure for the business

Question 1

What is unlimited liability?

Answer 1

The owner is personally liable for all of the debts of the business. All sole traders and most partnerships have unlimited liability.

Question 2

What is limited liability?

Answer 2

The owner is only responsible for the money they have invested.

Question 3

Factors affecting choosing the legal structure?

Answer 3

How much tax and national insurance the business pays.
The records and accounts that have to be kept.
The liability faced by the owner if the business fails.
The sources of finance available.

Question 4

What is a sole trader?

Answer 4

A sole trader is someone who starts and runs the business themselves, This will lead to unlimited liability.

Question 5

Separation of ownership and control.

Answer 5

Describes a situation in which the owners are not the same people as those controlling the business on a day to day basis.