Liability

Question 1

What is limited liability

Answer 1

Limited liability means that a business owner is only liable for their original investment should the business fall into debt, their personal possessions are not at risk

Question 2

What is unlimited liability

Answer 2

Unlimited liability means that If a business has debts the owner must pay even if this means selling their own possessions to find the money

Question 3

Implications of unlimited liability

Answer 3

If a business gets into financial trouble or is sued a sole trader or partnership businesses may have to sell their own assets (like a family car) to pay the debts of the business

Question 4

Limited liability of businesses

Answer 4

The two forms of limited liability businesses are;
• Private limited company (ltd) • E.g. Eddie Stobart ltd
• Public limited company (Plc) • E.g. Sainsbury’s Plc

Question 5

Implications of limited liability

Answer 5

• The owner and the business have separate legal identities so can sue or be sued separately
• The owner and the business can own separate assets
• The business can now sell parts of the business called shares to shareholders

Question 6

Finance suitable for an unlimited liability business

Answer 6

• Business loans from a bank
• Private investors e.g. angels
• Credit cards from a bank
• Crowd funding from websites • Trade credit from suppliers
• Owners savings
• Overdraft from the bank

Question 7

Finance suitable for limited liability business

Answer 7

• Retained profit from the business
• Sale of assets from the business
• Ordinary and preference share issues
• Government grants
• Venture capital – as they may be borrowing larger amounts than unlimited liability businesses