Methods of Finance for Limited Liability

Question 1

Limited liability

Answer 1

Business has separate legal identity from owners

-only business can be sued, taken over, or liquidated

Question 2

Share capital

Answer 2

Money introduced to business through sale of shares

-provided by owners’ own resources

Question 3

Why is share capital suitable for limited liability?

Answer 3

Legal status.

Only limited companies can issue shares to raise finance.

Question 4

State two advantages of share capital

Answer 4

• Permanent source of capital

- Business - not required to pay dividends

Question 5

State two disadvantages of share capital

Answer 5

• Dilutes control away from founders

- Business = vulnerable to takeover

Question 6

Crowdfunding

Answer 6

Large amounts of people investing small amounts of money into business
,usually online.

Question 7

Two advantages of crowdfunding

Answer 7

• Acts as market research

- Provides people chance to start business, even without access to other sources of funding

Question 8

Two disadvantages of crowdfunding

Answer 8

• Business idea must be innovative

- Difficult to reach funding target (statistically)