Question 1

Are partners only liable for their 'share' of the business's debts?

Accepted Answer

No, this is a common misconception. Partners have 'joint and several' unlimited liability. This means any single partner can be held responsible for 100% of the business's debts, regardless of their profit-sharing ratio. That partner could then try to recover contributions from the other partners, but they are initially liable for the full amount to the creditor.

Question 2

Do all limited companies trade their shares on the stock market?

Accepted Answer

No. Only Public Limited Companies (Plc) can offer their shares for sale to the general public on a stock exchange. Private Limited Companies (Ltd) are far more common and are restricted to selling their shares privately to friends, family, and other associates. They cannot be publicly traded.

Question 3

If a sole trader has unlimited liability, does that mean the 'business entity concept' doesn't apply?

Accepted Answer

The business entity concept still applies for accounting purposes. This means the business's transactions must be recorded separately from the owner's personal transactions to accurately measure business performance and financial position. However, this accounting separation does not change the legal reality that there is no separation, and the owner remains personally liable for the business's debts.

Types of business entity

What you need to know

Types of business entity