GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Mark, a sole trader, has been trading for five years. A sole trader has unlimited liability. It means that he
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works on his own.
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can only hire a limited number of employees.
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is personally responsible for all business debts.
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cannot get a bank loan.
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Explanation:
Detailed explanation-1: -Sole traders have unlimited liability. This means that unlike the owners of a limited company, a sole trader is personally liable for their business’ debts. This is because the sole trader is their business, rather than the business having any legal identity in its own right.
Detailed explanation-2: -An example of unlimited liability is where a sole owner is responsible for a business, making themselves and the business entity one and the same thing. If the company encounters cash flow problems and cannot pay its debts, creditors can use the owner’s personal assets to pay the company debts.
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