Business ownership and limited liability

Overview

Limited and unlimited liability, separate legal identity, sole traders, partnerships and private limited companies with their advantages and disadvantages, and the role of Companies House.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is unlimited liability?

   Model answer

   Unlimited liability means the owners are personally responsible for all the debts of the business. Owners may have to sell personal possessions, such as their house, to pay them.

2. 2

   What is limited liability?

   Model answer

   Limited liability means the owners can lose only the money they invested in the business. Personal possessions are protected if the business fails.

3. 3

   Why does limited liability matter to a business owner?

   Model answer

   Limited liability lowers the personal risk of starting a business. Owners can invest without fearing the loss of their home.

4. 4

   What does it mean for a business to have a separate legal identity?

   Model answer

   A limited company exists in law separately from its owners. The company can own property, sue and be sued in its own name.

5. 5

   What is a sole trader?

   Model answer

   A sole trader is a business owned and run by one person, who has unlimited liability. The owner can employ staff but keeps all the profit.

6. 6

   Give two advantages of being a sole trader.

   Model answer

   A sole trader is easy and cheap to set up. The owner keeps all the profit and makes every decision.

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