Theme 2 - Liability Flashcards
What are assets ?
Things that the business owns
What is goodwill and is it an asset ?
Goodwill means reputation and its an asset as the business owns their reputation
What are the 2 types of assets ?
Current assets and fixed assets
Give an example of fixed assets (long term assets)
Buildings, vehicles, machinery, goodwill
Give an example of current asset (short term assets)
Cash at bank, inventory
What are liabilities ?
What the business owes to others
What are the 2 types of liabilities ?
Limited liabilities and unlimited liabilities
What’s the definition for limited liability ?
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
What’s the definition of unlimited liability ?
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
What are the 2 main business forms that have unlimited liability ?
The two main business forms that have unlimited liability are sole traders and partnerships
What are the implications of unlimited liability ?
• 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
• The business and the owner are seen as one legal entity, so are equally liable (responsible) for the debts
What are the 2 limited liability businesses ?
• Private limited company (ltd) • E.g. Eddie Stobart ltd
• Public limited company (Plc) • E.g. Sainsbury’s Plc
What are the Implications of limited liability ?
• 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
• There is protection of the owners personal savings and assets, in the event of debts or business collapse, the owners cannot be made to sell their personal possessions (like a house) to pay the debts of the business off.
• The owners would only lose their original investment in the business and no more.
What are the main types of finance that are suitable for unlimited liability business ( sole traders, partnerships)
The main types of finance that are suitable for sole traders and partnerships are:
• 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
What is a private limited company
One that only sells shares to friends and family. Stocks won’t be sold on for e.g. London stock exchange
