Basics of business financing:
2. Extending the ownership of the business
Finance and types of business organisation:
λ unincorporated businesses – principally sole traders and partnerships where there is no legal distinction between the owners and their business, and the personal assets of the business owners and the assets of the business are treated as one.
λ incorporated businesses – where the business owners and the business itself are legally separate, with the personal assets of the owners being treated as distinct from the business assets they own. This is the case with private limited companies and public limited companies. The owners of incorporated businesses are shareholders in that business. Ownership is spread among, possibly, a very large number of individuals, each of which owns only a proportion of the business, as defined by the number of shares held. Shareholders enjoy limited liability – limited to their shareholding. This means that should an incorporated business run into financial difficulties and not be able to pay its debts, the creditors (those owed money by the business) cannot ask the owners of that business for anything over and above their shareholding. The company is liable to the extent of its business assets, but the owners are only liable for their stake in the company. They stand to lose their investment in the shares, but nothing further. This means that raising finance from shareholders is easier, since those investing in the business have less to lose – there is less risk
Mr. A invested £10000 in a sole trader business
Mr. A invested £10000 in a partnership business
Mr. A invested £10000 in a public limited company.
How much money is Mr. A going to loose if business fails and creditors come to claim their money?
Mr. A will loose all £10000 and may have to pay some more to the creditors in case of failure of... [continues]
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