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Question 1

What does limited liability refer to?

Answer 1

When the shareholders in a company will not be held personally responsible for the debts of that business

This structure protects personal assets from business liabilities.

Question 2

What is unlimited liability?

Answer 2

When the business owner is personally responsible for all the debts of their business

This means that personal assets can be used to settle business debts.

Question 3

Define incorporation.

Answer 3

The process that businesses go through to become a registered company and a separate legal entity from the owner/shareholder

Incorporation provides legal protections and benefits for the business.

Question 4

Who makes up the board of directors?

Answer 4

The people who have overall responsibility for managing the company’s business activities

They are tasked with making strategic decisions for the company.

Question 5

What is a sole trader?

Answer 5

An individual who owns and starts the business alone

They are often responsible for all aspects of the business.

Question 6

How is a sole trader managed?

Answer 6

Managed by the owner

The owner has full control over the business operations.

Question 7

Provide an example of a sole trader.

Answer 7

E.G: plumber, electrician

These are common professions for sole traders.

Question 8

List two advantages of being a sole trader.

Answer 8

• Low cost entry
• Complete control
• No partner disputes/conflict

These advantages make it an attractive option for many entrepreneurs.

Question 9

List three disadvantages of being a sole trader.

Answer 9

• Unlimited liability for business debts
• End of business if owner dies
• Burden of management

These factors can pose significant risks and challenges for sole traders.