Limited Company Overview

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Questions and Answers

What is a key characteristic of a limited company?

It is not considered a separate legal entity.

It has a close relationship with employees and customers.

It has unlimited liability for its owners.

It can issue bonds and shares. (correct)

Which of the following is an advantage of a limited company compared to a sole proprietorship or partnership?

Closer relationship with customers.

Limited liability for owners. (correct)

Stronger incentive to improve efficiency.

Lower profits tax rate.

What disadvantage is associated with a sole proprietorship?

Ability to issue shares.

Separate legal status.

Unlimited liability. (correct)

Higher profits tax rate.

Which statement correctly describes the relationship between ownership and management in a limited company?

They are separate entities. (D) Signup and view all the answers

What is a disadvantage of a limited company compared to a sole proprietorship or partnership?

More complicated and costly set-up procedures. (A) Signup and view all the answers

What defines the liability of owners in a limited company?

Owners' liability is limited to their investment in the company. (D) Signup and view all the answers

A limited company has a separate legal status from its owners.

True (A) Signup and view all the answers

What is one advantage of operating a limited company?

Limited liability of owners. Signup and view all the answers

In a limited company, owners can raise capital by issuing ________.

shares Signup and view all the answers

Match the following forms of enterprise to their respective characteristics:

Sole proprietorship = Unlimited liability Partnership = All partners are liable for each other’s decisions Limited company = Ability to issue shares Signup and view all the answers

What is one major benefit of a partnership over a sole proprietorship in terms of financial resources?

A partnership has a wider source of capital. Signup and view all the answers

Why do owners of sole proprietorships face more risk compared to owners of limited companies?

Owners of sole proprietorships bear unlimited liability. Signup and view all the answers

What legal advantage does a limited company have over a sole proprietorship concerning liability?

Owners enjoy limited liability, confined to their investment. Signup and view all the answers

Describe one organizational disadvantage of a partnership compared to a sole proprietorship.

A partnership has less flexible decision-making. Signup and view all the answers

In terms of profit distribution, how does a partnership differ from a sole proprietorship?

Partners share parts of the profits. Signup and view all the answers

What is a characteristic shared by both sole proprietorships and partnerships regarding liability?

Both face unlimited liability. Signup and view all the answers

Explain how ownership transfer differs between sole proprietorships and partnerships.

Sole proprietorships allow free transfer of ownership, while partnerships require consensus. Signup and view all the answers

What role does collective responsibility play in partnerships?

All partners are legally bound by the business decisions of others. Signup and view all the answers

In Universe X, how does the legal responsibility for selling bad cakes differ for Cynthia compared to Universe Y?

In Universe X, Cynthia is legally responsible because she is in a partnership, whereas in Universe Y, the limited company bears the responsibility. Signup and view all the answers

What implications does the structure of Cynthia's business have on her personal assets in Universe X when compensating for the victims?

In Universe X, Cynthia may need to sell her personal assets to pay the victims, as she has joint liability in a partnership. Signup and view all the answers

What major difference exists in the continuation of the business if Cynthia were to die in Universe X versus Universe Y?

In Universe X, the partnership would cease to exist if Cynthia dies, while in Universe Y, the limited company would continue to operate. Signup and view all the answers

How does the method of raising capital differ between Cynthia's café in a partnership and in a limited company?

In a partnership, Cynthia cannot raise capital through issuing shares or debentures, while a limited company can. Signup and view all the answers

What is the tax difference between the profits of the partnership in Universe X and that of the limited company in Universe Y?

A partnership pays 15% profits tax, while a limited company pays 16.5% profits tax. Signup and view all the answers

What requirement is there for the formation of a partnership that is not necessary for a limited company?

A partnership requires a business registration certificate, while a limited company requires multiple legal documents. Signup and view all the answers

If Cynthia and Stella sell their café assets but still can't pay the victims, what are the potential personal consequences for them in Universe X?

They may face bankruptcy and possible legal actions as personal assets could be used to settle debts. Signup and view all the answers

What legal protection does Cynthia have in Universe Y that she does not have in Universe X regarding business debts?

In Universe Y, Cynthia has limited liability protection and is not personally liable for the café's debts. Signup and view all the answers

What factors should Cynthia consider when deciding between sole proprietorship and partnership?

Cynthia should consider factors such as capital sources, decision-making flexibility, workload, and personal liability. Signup and view all the answers

How would a partnership benefit Cynthia in terms of risk management?

A partnership allows for sharing of business risks, reducing the financial burden on any single owner. Signup and view all the answers

In what way does a sole proprietorship provide ownership benefits compared to a partnership?

A sole proprietorship allows for sole claim of profits and free transfer of ownership without needing consent from partners. Signup and view all the answers

What would be a significant disadvantage of having a sole proprietorship regarding business growth?

A sole proprietorship has narrower sources of capital, which may limit expansion opportunities. Signup and view all the answers

Why might Cynthia experience heavier workloads as a sole proprietor?

As a sole proprietor, Cynthia would handle all operational aspects alone, leading to a heavier workload. Signup and view all the answers

What impact does decision-making flexibility have on Cynthia's choice of business ownership?

Sole proprietorship offers greater decisional autonomy, allowing for quicker responses to market changes. Signup and view all the answers

How could having a partner change the operational dynamics of Cynthia's café?

Having a partner would allow for a wider division of labor, improving efficiency and specialization in operations. Signup and view all the answers

What legal responsibility would Cynthia face if she chooses a partnership?

Cynthia would be legally bound by the business decisions made by Stella, contributing to shared liabilities. Signup and view all the answers

Why does Cynthia bear unlimited liability in a partnership?

Because a partnership lacks separate legal status, making partners personally liable for debts. Signup and view all the answers

What happens to Cynthia if the café's assets are insufficient to cover its debts?

Cynthia will declare bankruptcy due to her personal liability for the café's debts. Signup and view all the answers

List one advantage of forming a partnership over a limited company.

A simpler and less costly set-up procedure. Signup and view all the answers

Name one disadvantage of a partnership compared to a limited company.

Unlimited liability of owners. Signup and view all the answers

Identify one disadvantage of a limited company compared to a partnership.

More complicated and costly set-up procedure. Signup and view all the answers

What does the term 'separate legal status' mean for a limited company?

It means the company is recognized as an entity distinct from its owners legally. Signup and view all the answers

Explain why a limited company can have wider sources of capital than a partnership.

A limited company can attract investment through shares, while partnerships typically rely on personal capital. Signup and view all the answers

How is the continuity of a limited company different from that of a sole proprietorship?

A limited company has lasting continuity, while a sole proprietorship lacks continuity. Signup and view all the answers

What legal status does a partnership have compared to a sole proprietorship?

A partnership has a separate legal entity status, whereas a sole proprietorship does not. Signup and view all the answers

In terms of ownership and management, what is a characteristic unique to limited companies?

In limited companies, ownership and management are usually separated. Signup and view all the answers

What implication does limited liability have for the owners of a limited company?

Owners are only liable for the amount they invested in the business. Signup and view all the answers

What is a key disadvantage of sole proprietorships compared to limited companies?

Sole proprietorships have unlimited liability, putting personal assets at risk. Signup and view all the answers

How do the tax rates compare between limited companies and sole proprietorships?

Limited companies face a higher profits tax rate of 16.5% compared to 15% for sole proprietorships. Signup and view all the answers

What challenge do limited companies face concerning their set-up procedure?

Limited companies have a more complicated and costlier set-up procedure. Signup and view all the answers

In terms of capital sources, how does a limited company differ from a sole proprietorship?

A limited company has the widest sources of capital, including issuing bonds and shares. Signup and view all the answers

What type of relationship do employees and customers tend to have with sole proprietorships?

Sole proprietorships have the closest relationships with employees and customers. Signup and view all the answers

What is a disadvantage related to decision-making in a partnership?

All partners in a partnership are legally bound by each other's business decisions. Signup and view all the answers

What can be said about the flexibility in decision-making among different business structures?

Sole proprietorships are the most flexible, while limited companies are the least flexible. Signup and view all the answers

What is one primary incentive that limited companies face in terms of improving efficiency?

Limited companies generally have a weaker incentive to improve efficiency compared to sole proprietorships. Signup and view all the answers

How does the transfer of ownership differ between partnerships and limited companies?

Partnerships require consent of all partners for ownership transfer, unlike limited companies. Signup and view all the answers

What does the term 'unlimited liability' mean for sole proprietors?

Unlimited liability means sole proprietors are personally responsible for all business debts. Signup and view all the answers

Study Notes

Limited Company

A private enterprise (有限公司) owned by at least one person, enjoying limited liability in the business.
Separate legal status: The enterprise and its owners are separate legal entities under law. This means the company can own property, enter contracts, sue and be sued in its own name.
Limited liability: Owners' liability is confined to the amount invested. Personal assets are not used to pay company debts.

Types of Private Enterprise

A diagram classifies enterprises into public enterprises and private enterprises. Private enterprises further branch into sole proprietorships, partnerships, and limited companies.

Comparison: Sole Proprietorship/Partnership vs. Limited Company

Advantages (Sole Proprietorship/Partnership):
- Lower profit tax rate
- Simpler, less costly set-up procedure
- Stronger incentive to improve efficiency
- Closer relationship with employees and customers
Advantages (Limited Company):
- Separate legal entity/status
- Limited liability of owners
- Lasting continuity
- Wider source of capital (can issue bonds/shares)
- Separation of ownership and management
Disadvantages (Sole Proprietorship/Partnership):
- No separate legal status
- Unlimited liability of owners
- Lack of continuity
- Narrower source of capital (cannot issue bonds/shares)
- No separation of ownership and management
- All partners are legally bound by business decisions of other partners (partnership only)
Disadvantages (Limited Company):
- Higher profit tax rate
- More complicated, costly set-up procedure
- Weaker incentive to improve efficiency
- More distant relationship with employees and customers

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Description

Explore the characteristics and advantages of limited companies as private enterprises. Learn how they differ from sole proprietorships and partnerships regarding liability and legal status. Understand the importance of limited liability and separate legal identity in business formations.