Liability

• common forms of business ownerships:

  • sole traders
  • partnerships
  • private limited companies
  • public limited companies
  • franchises
• unlimited liability?


  a business structure where the owners are personally responsible for all of the company's debt
• implication of unlimited liability:

  • no legal distinction between owners with unlimited liability and business
  • business owners may have to use their own personal asset (their home) to pay debts or legal fees
• limited liability?


  a company structure where the owners are only legally responsible for the business debts up to the amount they invested in the company
• implication of limited liability:

  • companies are incorporate
  • owners are considered a separate legal entity to business
  • if company fails: owners would lose investment but would not have to use assets to pay debts/fees
• incorporated?


  a business registered with a state to become a sperate legal entity
• sources of finance for limited liability businesses:

  internal:

  • retained profit
  • debentures
  • share capital investors

  investors(venture capitalists, business angels)
• sources of finance for unlimited liability businesses:

  • internal:
  • bank
  • suppliers (trade credit + leasing)
  • investors (crowdfunding + peer-to-peer lending)
  • external bodies (grants)
• how does 'why is finance needed' affect the choice of finance?

  • capital expenditure requires long-term method of finance
  • revenue expenditure is funded through a short-term method
• how does 'for how long/quickly is finance needed' affect the choice of finance?

  • quick, short-term finance: overdrafts, trade credit, leasing or short-term loans
  • long-term finance: share issue, grants, debentures or mortgages
• how does 'who will lend to business' affect the choice of finance?

  • start-ups/struggling business: choice of finance is limited + pays more to access
  • unlimited liability business are seen as risky
  • venture capitalists, business angels or crowdfunding are chosen is business presents more of a risk to lenders
• how does 'cost and easiness to access finance' affect the choice of finance?

  • methods of finance that attract interest loans, mortgages + overdrafts are less affordable - interest rates are high
  • interest -free are more complex to access
• how does 'legal status of business' affect the choice of finance?

  • lenders prefer stable, established businesses that own assets
  • investors prefer limited companies - able to obtain a share in the business
  • unlimited liability businesses struggle to raise finance
• collateral?


  assets pledged by business as security for repayment of a loan
• trading record?


  history of successful operations as a business
• legal entity?


  company that has legal rights/responsibilities