liability Flashcards
what does liability depend on
legal status of business
what is unlimited liability
business and owners are seen as one under the law. business debts become personal to the owner and so they may have to see personal possessions to pay off this debt.
what is another name for a business with unlimited liability
unincorporated business
types of business that have unlimited liability
sole traders and parterships
what is limited liability
business has a separate legal identity to owners who arent personally responsible for businesses debts. the business can be sued, liquidated or taken over.
whats the most a shareholder can lose with limited liability
what they invested
another name for a business with limited liability
incorporated business
what are the implications of unlimited liability
- owners exposed financially to the failure of the business
- owners are liable for any unlawful acts committed by the owners and employees
- may find it easier raising finance
expand on owners exposed financially to the failure of the business
if business collapses when they owed money to external parties, suppliers, banks, tax authorities, they have to make the money up from external parties
expand on owners are liable for any unlawful acts committed by the owners and employees
other stakeholders can sue them due to lack of separation of legal identity
expand on may find it easier raising finance
lenders will be reimbursed if a business fails to meet pay deadlines. business often seen as more credible as owners are encouraged to be more cautious
implications of limited liability
-their financial liability is fixed at what they invested
- shareholders have protection from legal claims on the business
- may find it easier to raise larger amounts of money from investors
expand on their financial liability is fixed at what they invested
owners private assets are fully protected
expand on shareholders have protection from legal claims on the business
separate legal identities. however, courts may decide on individuals liable if they fail to maintain adequate records and accounts
expand on may find it easier to raise larger amounts of money from investors
private assets protected so more willing to invest. however, some owners may be required to give personal guarantees of the companys debts to lenders. theyll be liable for debts but other shareholders wont be.
