1. 213 Liability AS Edexcel New Specification 2015 Business
By Mrs Hilton for

2. Lesson Objectives
To be able to discuss unlimited liability and its implications
To be able to discuss limited liability and its implications
To be able to identify appropriate finance for limited liability
To be able to identify appropriate finance for unlimited liability
To be able to answer sample exam questions based on the topic area

3. From the specification
a) Implications of limited and unlimited liability b) Finance appropriate for limited and unlimited liability businesses

4. Guidance from Edexcel

5. Starter Limited or unlimited liability which is this a definition of?
Company directors aren’t personally responsible for debts the business can’t pay if it goes wrong, as long as they haven’t broken the law.
Limited
Taken from:

6. Definition of limited and unlimited liability
Limited liability is: where a business owner is only liable for their original investment should the business fall into debt. The business and the owner have separate legal identities. PLC and LTD
Unlimited liability is: If a business has debts the owner must pay even if this means selling their own possessions to find the money. Sole trader and partnerships

7. Implications of limited and unlimited liability

8. Implications of limited liability
The owner and the business have separate legal identities so can sue or be sued separately
The owner and the business can own separate assets
The business can now sell parts of the business called shares to shareholders
There is protection of the owners personal savings and assets, in the event of debts or business collapse, the owners cannot be made to sell their personal possessions (like a house) to pay the debts of the business off. The owners would only lose their original investment in the business and no more.
To qualify for protection a business must be registered with companies house as a ltd or plc.

9. Implications of unlimited liability
Sole trader or partners may have to sell their own assets (like a family car) to pay the debts of the business
They are unable to sell shares in the business
However they may be able to secure finance due to the fact that they are demonstrating to a bank that they are prepared to risk their own finances on the business

10. Finance appropriate for limited and unlimited liability businesses

11. Finance for an unlimited liability business
Business loan
Private investors
Credit cards
Crowd funding
Trade credit
Owners savings
overdraft

12. Finance for a limited liability business
Retained profit
Sale of assets
Debentures (loan on a specific item like a machine, asset cannot be sold without debenture holders permission)
Ordinary and preference shares
Hire purchase and leasing
Trade credit
Government grants
Venture capital
This is just a list as it is covered in other slide shows

13. Sample questions

14. Sample question 1 6 mark question Case on next slide
Question taken from paper 1 June 2014

16. Level Mark Descriptor Possible answer 1 Knowledge
Limited liability is where the owners of a business are not liable for any debts beyond what they have invested in the company 2
Application
e.g. about Fitness Retreat Ltd
Marvin would not lose his personal possessions in the events of business failure 3
3-4
Analysis
e.g. a consequence of Fitness Retreat ltd of having limited liability
Shareholders are more willing to invest in the company – less of a risk financially if it fails 4
5-6
Evaluation
e.g. arguments that limited liability might not be that important
Limited liability might not be that important for this business as banks may be likely to invest due to celebrity status and innovative idea Or
Banks may not invest as Marvin is not risking any of his own money rather than the capital invested

17. Series of videos
Don’t just sit passive through the videos, make notes, pause them to review the information and ask if you have any questions…

18. Revision Video

21. Glossary
Limited liability; If the business has debts the owners are only liable for the amount of their original investment
Unlimited liability; If the business has debts the owners are liable for the full amount and may need to sell their own assets to cover payments