Limited Liability in Companies

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Questions and Answers

What is the main advantage of setting up a company over being a sole trader or partnership?

Increased personal wealth

Limited liability (correct)

Unlimited liability

Lack of accountability

What happens to shareholders' private wealth in the event of company collapse?

It is seized by the creditors

It is used to pay company debts

It is confiscated by the government

It is unaffected (correct)

What is a characteristic of a member-governed body?

Run by the government

Run by a single individual

Run by its members for the benefit of the members (correct)

Run by external stakeholders

What is the key difference between an incorporated and unincorporated member-governed body?

Incorporated bodies have limited liability, while unincorporated bodies do not Signup and view all the answers

What is the term for the maximum amount of money a shareholder can lose in the event of company collapse?

Limited liability Signup and view all the answers

What is the main benefit of a company being listed on a public stock exchange?

Larger resources can be pooled from a larger group of investors Signup and view all the answers

What is an example of a public listed company?

Genting Berhad Signup and view all the answers

What is a key benefit of incorporation for a member-governed body?

Members' liabilities are limited by guarantees Signup and view all the answers

What is the minimum number of owners required for a sole proprietorship?

1 Signup and view all the answers

What happens to a partnership when one of the partners dies?

The business ceases to exist Signup and view all the answers

What is a characteristic of a company in terms of liability?

Limited liability for incorporated companies Signup and view all the answers

How many owners can a company have?

Between 1-50 owners for Sdn Bhd, no limit for Bhd Signup and view all the answers

What is a benefit of incorporation for a business?

Limited liability for owners Signup and view all the answers

What is the typical structure of a company?

Multiple owners, governed by a board of directors Signup and view all the answers

What type of reporting standards do companies follow?

Malaysian Financial Reporting Standards Signup and view all the answers

What is a characteristic of a company in terms of existence?

Perpetual existence, until revoked Signup and view all the answers

What is the main difference between MPERS and MFRS?

One is for private entities and the other is for public entities Signup and view all the answers

What is an advantage of a sole proprietorship business?

Full control and direction over the business Signup and view all the answers

What is a disadvantage of a sole proprietorship business?

Limited access to capital Signup and view all the answers

What is one of the two major functions of accounting?

Financial accounting Signup and view all the answers

What is the definition of accounting?

An information system that identifies, records, and communicates relevant, reliable, and comparable information Signup and view all the answers

What is the main benefit of incorporating a business?

Separation of personal and business assets Signup and view all the answers

What is the role of a shareholder in a company?

To provide financial capital to the business Signup and view all the answers

What is the primary structure of a company?

Corporation Signup and view all the answers

Study Notes

Types of Business Entities

A public company offers shares to the general public and trades on a public stock exchange, allowing individuals to buy shares easily.
Shareholders in a public company have limited liability, which means they can only lose the amount of money they invested in the company.

Advantages of Companies

Limited liability for shareholders, making it a more attractive option for investors and businessmen.
Shareholders' personal wealth is protected from creditors, who can only claim against the company's assets.
Larger resources can be pooled from a larger group of investors.

Examples of Public Listed Companies

Genting Berhad
Nestle (Malaysia) Berhad
Public Bank Berhad

Member-Governed Bodies

These entities are run by their members for the benefit of the members.
Examples include mutual building societies, sports clubs, social clubs, churches, and life assurance companies.
Members' liabilities are limited by guarantees if the entity is incorporated.
Incorporated member-governed bodies have a separate legal entity, allowing them to own assets and incur debt.

Comparison of Business Entities

Sole proprietorships: one owner, unlimited liability, business ceases to exist at the owner's death or choice.
Partnerships: 2-20 owners, unlimited liability, business ceases to exist at the partner's death or choice.
Companies: 1-50 owners for Sdn Bhd, no limit for Bhd, limited liability, perpetual existence.
Member-governed bodies: not applicable, limited liability for incorporated, unlimited for unincorporated, perpetual existence.

Accounting for Business Entities

Financial accounting and management accounting are the two major functions of accounting.
Accounting is an information system that identifies, records, and communicates relevant, reliable, and comparable information on an organization's business activities.

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Description

This quiz covers the benefits of setting up a company, particularly the concept of limited liability for shareholders. Learn why businessmen prefer companies over sole trader or partnership setups.