Legal Forms of Business

Question 1

Which of the following business models offers unlimited liability to its owner(s)?
A) Sole Trader and Partnership
B) Limited Liability Partnership (LLP)
C) Private Company
D) Public Company

Answer 1

A) Sole Trader and Partnership
(Both models expose owners to unlimited personal liability for business debts.)

Question 2

What is the main advantage of a Limited Liability Partnership (LLP) over a general partnership?
A) No registration fees
B) Members have limited liability
C) No public disclosure requirements
D) It cannot borrow money

Answer 2

B) Members have limited liability
(An LLP limits partners’ financial risk to their agreed contribution.)

Question 3

Which business model is not a separate legal entity from its owners?
A) Private Company
B) Limited Liability Partnership
C) Sole Trader
D) Public Company

Answer 3

C) Sole Trader
(Sole traders and partnerships are not separate legal entities; owners are personally liable.)

Question 4

Which business structure allows raising finance through share issuance?
A) Sole Trader
B) Partnership
C) Limited Liability Partnership (LLP)
D) Private Company

Answer 4

D) Private Company
(Only companies can issue shares to raise capital.)

Question 5

David and Lucy run a business together but never signed a formal agreement. They share profits and losses. What type of business model do they have?
A) Private Company
B) Limited Liability Partnership
C) General Partnership
D) Sole Trader

Answer 5

C) General Partnership
(A partnership can form without a formal agreement if two or more people work together for profit.)

Question 6

Sarah owns a bakery as a sole trader but wants to reduce her personal financial risk. What would be the best business structure for her?
A) General Partnership
B) Stay as a sole trader
C) Convert to a Limited Liability Partnership (LLP) or Private Company
D) Close the business

Answer 6

C) Convert to a Limited Liability Partnership (LLP) or Private Company
(Both LLPs and Companies offer limited liability to protect personal assets.)

Question 7

A business wants to avoid public financial disclosures while benefiting from limited liability. Which structure would be best?
A) LLP
B) General Partnership
C) Private Company
D) Sole Trader

Answer 7

A) LLP
(An LLP provides limited liability, but it must file accounts publicly, unlike partnerships or sole traders.)

Question 8

A partnership is struggling financially, and one partner leaves. Who is liable for the partnership’s debts?
A) Only the remaining partners
B) Only the departing partner
C) All partners, including the one who left, for debts incurred while they were a partner
D) The government covers business debts

Answer 8

C) All partners, including the one who left, for debts incurred while they were a partner
(Under joint and several liability, partners remain responsible for debts incurred while they were partners.)

Question 9

A bank is considering lending to a business. Which structure would be most attractive to the lender?
A) Sole Trader
B) General Partnership
C) Private Company
D) LLP

Answer 9

C) Private Company
(Lenders prefer companies because they provide greater transparency and security.)

Question 10

A company wants to issue shares to the public. Which structure allows this?
A) Limited Liability Partnership (LLP)
B) Private Company
C) Public Company
D) General Partnership

Answer 10

C) Public Company
(Only public companies (Plc) can offer shares to the public.)