Day: July 27, 2024

Alex is a sole trader who currently employs one person.

His business, Stafford Research, performs analysis for marketing and market research companies.

The workload is increasing rapidly, and Alex has realised that he now needs to employ three additional people.

This will mean that new office premises have to be found and new furniture and equipment purchased.

The business operates in a highly competitive sector within the Staffordshire business community.

Identify which TWO of the following factors are disadvantages of his current business structure of being a sole trader in this context:

A A floating charge cannot be uses to secure borrowing
B The Business’s liability is unlimited
C Alex’s liability is unlimited
D Financial statements do not have to be filed at Companies House
E The stringent legal rules that apply to the business’s constitution and the way it operates.

Select ONE answer:

1. AB
2. AC
3. AD
4. AE

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Notcorrect
2. Correct  –>  A floating charge (which gives lenders security for their loan) cannot be created over the business of a sole trader (A), but it can be over the assets of a limited company. This could hinder his ability to raise finance. Currently, Angela has unlimited liability (C) and with the increasing financial commitments of the business it might be better for him personally to seek limited liability, though the business will still have unlimited liability for its own debts (B) – as a sole trader, the business’s liability is not distinct from his own.
3. Not correct
4. Not correct

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