liability and finance

What is unlimited liability?

If a business has unlimited liability, the business and the owners are seen as one under the law.

this is the case for soul traders and partnership.

What does limited liability mean?

1. the owners aren't personally responsible for the debts of the business.

Who has limited liability?

The sharcholders (owners) of both private and public limited companies have limited liability, because a limited company has a separate legal identity from its owners.

What’s the only thing the owner will lose if the business fails

The money they invested

Why do businesses with limited liability find it easier to attract investors?

Investors only risk losing the amount they have invested.

Why are people more willing to become part-owners of limited companies?

They know they will only lose what they have invested if the business goes bust.

What sources of finance are sole traders and partnerships likely to rely on?

Internal finance and external finance that doesn't involve becoming a part-owner.

Give four examples of finance methods used by businesses with unlimited liability.

Loans, overdrafts, leasing and trade credit.

Why can't businesses with unlimited liability raise finance through share capital?

They aren't owned by shareholders.

How can limited companies raise large amounts of finance?

By issuing shares and raising share capital.

How could a business with unlimited liability still attract investors?

Someone, such as a business angel, could invest and become a partner.

Why might unlimited liability limit the amount investors are willing to put in?

Investors may be worried about the risk of unlimited liability.

Why might unlimited liability businesses struggle to persuade people to invest?

Their unlimited liability status may reduce the number of people willing to invest.

How could unlimited liability sometimes make it easier to raise finance?

Lenders may know they can recover their money from the owners' personal assets if the business fails.

Why might lenders be wary of lending to a business changing to limited liability?

They may think the owners are trying to protect themselves because the business is very risky

Why might lenders still offer finance to businesses with unlimited liability, even if they are small or new?

They may still get their money back because owners are personally responsible for the debt.