Chapter 28 - Liability Flashcards
(15 cards)
What is Limited Liability?
Shareholders are not personally responsible for the company’s debts.
This protects personal assets from business liabilities.
What is Unlimited Liability?
Business owners are personally liable for debts.
This means personal assets can be used to settle business debts.
Define Legal Entity.
A business that has a legal identity separate from its owners.
This allows the business to enter contracts, sue, and be sued.
What does Incorporation refer to?
The process of legally forming a company.
This process grants the business legal status and limited liability.
Who is a Sole Trader?
A person who owns and runs a business on their own.
This structure is simple and involves fewer regulatory requirements.
What is a Company?
A business that is a separate legal entity from its owners.
This distinction provides limited liability to its shareholders.
Define Personal Assets.
Belongings owned by an individual, such as a car or house.
Personal assets are distinct from business assets.
What are Business Assets?
Items owned by the business, like machinery or stock.
These are used to generate revenue for the company.
What is Financial Risk?
The danger of losing money.
Businesses often face financial risks in various forms, including investments.
What is the Corporate Veil?
The legal distinction between the company and its shareholders.
This veil protects shareholders from being personally liable for company debts.
Define Responsibility in a business context.
The state of being accountable for something.
This includes legal and ethical obligations within a business.
What does Insolvency mean?
When a business cannot pay its debts.
This situation may lead to bankruptcy proceedings.
What is Risk-taking?
Accepting the possibility of loss when making decisions.
Risk-taking is a fundamental aspect of entrepreneurship.
Who are Creditors?
People or organisations owed money by the business.
Creditors have a legal claim to the debts owed by the business.
What is Debt Protection?
Legal safeguards to limit personal financial risk.
This can include various structures like LLCs or corporations.
