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GCSE Business · key term
Legal responsibility for debts owed by a business.
Used by AQA, Edexcel and OCR
Paper 2
A financial obligation owed by a business, such as a loan or an unpaid supplier’s invoice.
Revise: Financial StatementsA liability is an amount the business owes. A delivery vehicle owned by a business is an asset; an outstanding loan used to buy it is a liability. Both can appear on the statement of financial position.
Specification 1.4.1 · Paper 1
Revise: Start-Up Ownership OptionsLiability means legal responsibility for debts. A business might owe money to suppliers or a bank. If it cannot repay that money, its ownership structure determines whether the owners’ personal possessions are at risk.
Paper 1
An owner’s financial responsibility for the debts of a business.
Revise: Concept of Limited LiabilityLiability concerns who is financially responsible for these debts. This becomes particularly important if the business fails and cannot repay everything it owes.
For a question about unlimited liability, explain that personal assets may be used to repay business debts, then develop the consequence for the owner.
Limited liability protects shareholders’ personal assets from company debts; it does not prevent them losing their investment or guarantee business success.
Limited liability protects shareholders’ personal assets; it does not limit the amount of debt the company can owe.
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