IGCSE, A Level Business Student Forum

Q16 How does the existence of limited liability benefit an individual shareholder. [6]

Possible Answer:
[KN] Separate profiling of investments (keeping other investments separate from business)
[AN] SH's personal assets/investments are safe therefore their living standards /investments in other ventures are not compromised.
[AN+] Therefore, leading to less pressure on SH's leading to mature decisions.

[KN] Personal Assets are safe, make them to take higher risks
[AN] Higher risks leads to higher returns especially when unincorporated businesses are hesitant to invest in certain areas
[AN+] giving them a competitive advantage over other firms & getting increased market share.

[KN] Protection of personal assets
[AN] Shareholders' liability is limited to the amount they invested in the business. This means that even if the business faces bankruptcy or legal claims, creditors typically cannot seize the personal assets of individual shareholders to settle business debts.
[AN+] The protection of personal assets encourages individuals to take entrepreneurial risks and invest in businesses without the fear of losing everything they own. This fosters a culture of innovation and risk-taking, as entrepreneurs are more likely to pursue ambitious ventures knowing that their personal financial well-being is not unduly jeopardized.

[KN] Risk mitigation
[AN] Limited liability mitigates the financial risk borne by individual shareholders. In the event of business failure, debts, or legal liabilities, shareholders are not personally responsible for covering the company's financial obligations beyond the amount they invested in the business.
[AN+] The mitigation of personal financial risk encourages individuals to invest in businesses. Knowing that their liability is limited to the capital they have invested, shareholders are more likely to contribute funds to the company, fostering an environment of investment and capital infusion.

(kn)safeguard personal assets
(an)meaning even if the company is going bankrupt his personal assets as in house, car etc will not be taken
(an+)making it easier to invest in the business
(kn)separate legal identity
(an) individual can enjoy never ending existence that does not dissolve when an owner leaves
(an+)hence having a senses of security

[KN] Lesser Risk
[AN] The amount which is invested will be the amount that is lost if the business fails.
[AN+] So personal assets are not at stake.

[KN] Separate legal entity
[AN] This concept is applied for limited liability which means that the business and the owner are different individuals.
[AN+] So the reputation is not tarnished.

[KN]shareholders recieve higher returns
[AN]it improves living standards of the shareholder
[AN+]this allows them to spend more on shares which gives them even more dividends

[KN]it gives them a sense of security
[AN]this attracts more shareholders to invest in the company
[AN+]yhis increases the price of your shares

(Kn)invest without stress of risk of being in debt(an) since there is no risk of them being held responsible for the debts of the business, they invest freely (an+) this encourages them to invest more and get higher returns without worrying of being indebted
(Kn)their liability is limited to what they invest (an) they wont have to pay for any thing other than what they have already paid in shares(an+) hence if the business fail they wont have to pay the debtors of the business

Syed Mustafa Ali wrote: ↑Wed Nov 01, 2023 6:40 pm [KN] Protection of personal assets
[AN] Limited liability means that the individual shareholder's personal assets, such as their savings, and other personal property, are shielded from the debts and liabilities of the business.
[AN+] This separation between the individual and the business helps safeguard their financial well-being.

[KN] Risk mitigation
[AN] Limited liability encourages individuals to invest in businesses without fear of losing more than their initial investment.
[AN+] Shareholders can invest in a company, take calculated risks, and reap the rewards of any financial success without the constant worry of personal bankruptcy or severe financial repercussions in case the business encounters difficulties.

The first point is incorrect because limited liability means that it is protecting there personal assets, so how can it be an advantages ?

Ibrahim Aamir wrote: ↑Sun Nov 05, 2023 1:58 pm

Syed Mustafa Ali wrote: ↑Wed Nov 01, 2023 6:40 pm [KN] Protection of personal assets
[AN] Limited liability means that the individual shareholder's personal assets, such as their savings, and other personal property, are shielded from the debts and liabilities of the business.
[AN+] This separation between the individual and the business helps safeguard their financial well-being.

[KN] Risk mitigation
[AN] Limited liability encourages individuals to invest in businesses without fear of losing more than their initial investment.
[AN+] Shareholders can invest in a company, take calculated risks, and reap the rewards of any financial success without the constant worry of personal bankruptcy or severe financial repercussions in case the business encounters difficulties.

The first point is incorrect because limited liability means that it is protecting there personal assets, so how can it be an advantages ?

if the business faces financial problems or goes bankrupt, the owners' personal assets are generally protected, and they are only liable for the amount they've invested in the company. This is what it means so it's an advantage for shareholders as they are not personally responsible for the company debts and financial obligations. Next time please point out a flaw if there really is one.

[KN] Risk can be managed.
[AN] Chances of financial risk can be reduced by limited liability for the shareholders.
[AN+] This leads to less chances of risks and more safety for shareholders.

[KN] Shareholders would receive more returns.
[AN] This will help to improve the lifestyles of shareholders.
[AN+] This leads towards helping them to invest more in buying the shares.

[KN] Protection of personal assets.
[AN] When shareholder personal assets will be shielded this will increase investment.
[AN+] Thus individuals will be more encouraged to participate in the financial growth of the business.

[KN] Dividends.
[AN] If the business for eg keeps more than half of the retained earnings this will increase the opportunity of shareholders getting more in return in long term in form of dividends.
[AN+] Thus this will lead to business having potential shareholders and will encourage innovation.

[kn] the shareholder will be sure that even if business fails personal assets will be secure
[an] encouraging investment through bank loans
[an+] leading to business growth as there is protection of personal assets
[kn] profit share distributed among shareholder's (dividend) even if low will be beneficial
[an] as it will make future growth more possible
[an+] as risk will be low leading to further expansion of the business

[KN]limited liability means shareholder is only responsible for amount invested in the business
[AN] therefore, personal property of the shareholders is not at risk
[AN] hence in case of business failure shareholders will not have to worry about lawsuits

[KN]Higher confidence
[AN]With limited liability, a shareholder would know the amount they'll loose
[AN]therefore this makes investment decisions easier for them

Moderator Comment:
AN1: Is an extension of the KN1 but needs to show the possible impact.
AN1+: Try to develop AN1 and later AN1+ again to show the further impact

Same issue in AN2, AN2+. Please update your answer!!!

Syed Mustafa Ali wrote: ↑Wed Nov 01, 2023 6:40 pm [KN] Protection of personal assets
[AN] Limited liability means that the individual shareholder's personal assets, such as their savings, and other personal property, are shielded from the debts and liabilities of the business.
[AN+] This separation between the individual and the business helps safeguard their financial well-being.

[KN] Risk mitigation
[AN] Limited liability encourages individuals to invest in businesses without fear of losing more than their initial investment.
[AN+] Shareholders can invest in a company, take calculated risks, and reap the rewards of any financial success without the constant worry of personal bankruptcy or severe financial repercussions in case the business encounters difficulties.

[KN] safety of personal assets
[AN]when shareholder assets would be secure so they will increase there investment
[An+] thus these investments by these shareholder will beneficial for the business to expand.

[KN] shareholder will large amounts of returns
[AN] which increase the living standards of the shareholder
[AN+] which will further motivate him to invest in the business to get more and more return which will help business to expand.

KN] Bonuses. [AN] In the long run, shareholders will have a higher chance of receiving dividends if, for example, the company retains more than half of its retained earnings. (AN+)As a result, this will enable businesses to attract potential investors and foster innovation.

KN] security of personal assets 
[AN]: When shareholder assets are safe, they will invest more [
An+]; as a result, these investments by the shareholders will help the business grow.