Legal structures

When an entrepreneur first starts up a new business, he or she must decide what legal structure the business should adopt. Most new businesses start as ________ _____________ (i.e one individual owns and runs the firm).

Others start as ____________________________ where between 2 and 20 people own and run the business.

Both sole traders and partnerships have unlimited liability, this means that there is no distinction drawn between the individual and the business and therefore if the business collapses, the owners can lose not only the money they invested but also their __________________ __________________.

Alternatively, an individual can create a separate legal identity for the business by forming a(n) __________________ company.

This means that by law the owners of the business and the company itself are now two different things. This provides the owners with _______________ ___________________ (i.e. they can only lose what they put into the business and not personal assets.

Provide an example of type of business that should not start up as a sole trader or partnership and explain why.

Explain why the support of limited liability can encourage entrepreneurs to be bolder (braver) in their risk-taking.

Another name of top management is board of directors.

• True

• False

Dividends are declared only if the directors decide to do so.

• True

• False

If an shareholder in Public Limited Company would like to sell share to an outsider, all other shareholders have to agree.

• True

• False