2.1.3 Liability

Unlimited Liability

🔗 Owner and business are the same legal entity

• This applies to unincorporated businesses (sole traders & partnerships)
• May be easier to get finance due to the assurance owners can sell personal assets to pay money back.
• The owner is exposed financially due to being responsible for any debts the business incurs

Limited Liability

🔗 Owner and business are separate legal entities

• Applies to incorporated businesses (Private limited companies, LTD & Public limited companies, PLC)
• Shareholders personal assets are not at risk if the business incurs debts e.g., loans/creditors
• Likely to raise large amounts of finance
• Financial liability is limited to the investment amount
• Suppliers run more risks with limited companies and may insist on guarantees before investing, if a limited company becomes insolvent suppliers may not get paid

🔑 Finance Appropriate For Limited And Unlimited Liability Businesses

Unlimited Liability

• Owners' capital/personal savings.
• Unsecured bank loans.
• Peer-to-peer funding.
• Overdraft.
• Grants.

Limited Liability

• Share capital.
• Retained profit.
• Venture capital.