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Question 1

What type of legal strucutre do soletraders and partnerships have?

Answer 1

Sole traders & partnerships offer no legal protection to the owners in that the business assests and the owners personal assets are viewed the same

Question 2

What legal structure do the other forms of business have?

Answer 2

Other forms of business ownership offer limited liability in which the assets of the owners are considered to be seperate from those of the business

Question 3

What is unlimited liability?

Answer 3

• Sole proprietors and partnership owners are fully responsible for all the debts owed by the business
• Owners also legally responsible for any unlawful acts committed by those connected to the business

Question 4

What are the implications of unlimited liability?

Answer 4

There is no legal distinction between owners with unlimited liability and the business

As a result business owners may have to use their own personal assets to pay debts or legal fees

e.g a sole proprietor may need to sell their home to pay creditors if their business fails

Question 5

What is limited liability?

Answer 5

• Owners (shareholders) of private limited companies and public limited companies can only lose the original amount they invested in the business if it fails
• Shareholders are not responsible for business debts- In most cases the shareholders cannot be held responsible for unlawfulmacts committed by those connected with the business

Question 6

What are the implications of limited liability?

Answer 6

Companies are incorporated (legally established) and owners are considered a separate legal entity to the business

This means that if a company fails, the owners would lose their investment (shares) but would not have to use their assets to meet additional debts or legal fees.

Question 7

What internal and external methods of finance are suited for limited liability businesses?

Answer 7

Internal:
Retained Profit
Debentures

External:
Venture capitalists
Share capital
Business angels

Question 8

What sources of finance are suitable for unlimated liability businesses?

Answer 8

Internal:
Personal savings
Retained profit

Bank:
Unsecured loan
Overdraft
Mortgage

Suppliers:
Trade credit
Leasing

Investors:
Crowd funding
Peer to peer lending

External Bodies:
Grants

Question 9

What is a cash-flow forecast?

Answer 9

A prediction of the anticipated cash inflows and cash outflows, typically for a 6-12 month period

Question 10

What are the advantages of cash flow forecasts?

Answer 10

Can support an application for a loan and are an integeral part of the business plan

They can help identify where the business may experience cash shortfalls or cash surpluses so that plans can be made to manage these periods (e.g arranging an overdraft)

Cash flow forecasts aid planning and help a business avoid costly mistakes

Question 11

What are the disadvantages of cash flow forecasts?

Answer 11

Forecasts are usually based on estimates and in reality inflows and outflows may differ significantly from the estimates

Cash flow forecasts require apporpriate skills insight research and time to prepare and update adequately which some people may not be able to do so

External factors that can impact inflows and outflows may not be reflected in the cash flow forecast