2.1.3 liability

• unlimited liability business


  - business of the finance is the same as the owners e.g if your business owes £1m to creditors you owe £1m.

  - small (owned by one person or a few partners)

  - e.g. sale traders or partnerships
• limited liability business


  - legal identity separate from its owners

  - courts can force businesses to sell their assets to pay off debts but not the owners

  - comes with tax and legal obligations

  - e.g incorporated business
• methods of finance for unlimited liability business

  - personal savings

  - retained profit

  - mortgage (owners house as collateral for a business loan)

  - unsecured bank loans

  - peer-to-peer lending

  - crowd funding

  - bank overdraft

  - grants
• methods of finance for limited liability business

  - share capital

  - debentures

  - retained profit

  - venture capitalists

  - business angels
• collateral


  an asset that might be sold to pay a lender when a loan cannot be repaid
• incorporated business


  a business model in which the business and the owners have separate legal identities
• limited liability


  a legal status that means shareholders can only lose the original amount they invested in a business
• long-term finance

  money borrowed for more than a year
• rights issue

  issuing new shares to existing shareholders at a discount
• short-term borrowing


  money borrowed for 12 months or less
• undercapitalised


  a business not raising enough capital when setting up
• unincorporated businesses


  a business model in which there is no legal difference between the owner(s) and the business
• unlimited liability


  a legal status which means that business owners are liable for all business debts