1.28 Liabilities Flashcards
(33 cards)
What is the definition of Liability?
Liability refers to the legal responsibility of business owners for their company’s debts and obligations.
What are the two types of liability businesses can have?
Limited and Unlimited Liability.
What characterizes Limited Liability Businesses?
The business exists as a separate legal entity from its owners, and owners can only lose the amount they invested.
Give two examples of Limited Liability Businesses.
- Private Limited Company (Ltd)
- Public Limited Company (Plc)
What characterizes Unlimited Liability Businesses?
No separation between the business and the owner(s), making owners personally liable for all business debts.
Give two examples of Unlimited Liability Businesses.
- Sole Trader
- Partnership
What is a potential financial risk for owners in Unlimited Liability?
Owners are financially exposed if the business fails and must meet debts using personal resources.
What can creditors claim from owners with Unlimited Liability?
Creditors can claim personal assets, including homes and savings.
What is a key implication of Limited Liability for shareholders?
Shareholders only lose their investment if the business fails.
What factors influence the choice of finance for a business?
- Short-term vs. long-term needs
- Business’s financial position
- Specific business circumstances
What is Short-Term Finance suitable for?
Temporary funding needs, such as cash flow issues.
What are two examples of Short-Term Finance?
- Bank overdrafts
- Short-term loans
What is Long-Term Finance appropriate for?
Growth, major investments, or large-scale projects.
What are two examples of Long-Term Finance?
- Mortgages
- Share capital
What is Capital Expenditure?
Long-term assets such as machinery and buildings.
What is Revenue Expenditure?
Day-to-day operations such as wages and utilities.
What is a primary source of finance for Unlimited Liability Businesses?
Personal Savings.
What is Retained Profit?
Profits reinvested into the business.
What is a disadvantage of using Mortgages for financing?
Increases risk if repayments fail.
What is Peer-to-Peer Lending?
Online platforms connect businesses with potential lenders.
What is Crowdfunding?
Raising funds from the public, usually via online platforms.
What is a key feature of Grants?
Do not need to be repaid but are often competitive and restrictive.
What is Share Capital?
Issuing new shares to raise capital.
What is a Rights Issue?
Offering new shares to existing shareholders at a discount.
