Lesson 1.4.1a

1.4.1a Limited and unlimited liability Quiz: Pearson Edexcel Business, Unit 4

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

In partnership with Revision Ninja

Lesson 1.4.1a, Limited and unlimited liability: 20 multiple choice questions for the Pearson Edexcel GCSE Business (1BS0), Unit 4: Making the business effective, written with Revision Ninja.

Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.

Host this setFree Play

The 20 questions

  1. Under unlimited liability, what can happen to the owner's personal assets if the business cannot pay its debts?

    • They are protected, because the business alone is responsible for all its debts
    • They are transferred to the shareholders in proportion to the number of shares held
    • They can be used to pay the business's debts, because the owner and business are not separate
    • They are automatically frozen by the government until the business has repaid its creditors

  2. Which statement describes limited liability?

    • The owners can never be sued by creditors, whatever debts the business owes to suppliers
    • The owners risk only the amount they have invested in the business, not their personal possessions
    • The owners must pay all debts of the business from their personal savings each and every year
    • The owners are responsible for the debts of the business only if they work full time in it

  3. Which type of business has limited liability?

    • A private limited company
    • A partnership
    • A sole trader
    • A franchise operated by an individual

  4. A sole trader's business has debts of £30,000 but only £10,000 of business assets. What is the position of the owner?

    • The owner pays £15,000 because debts are always shared equally between owners
    • The owner pays nothing because the debts belong to the business alone
    • The owner is responsible for the full £30,000 because the liability is unlimited
    • The owner is only responsible for the £10,000 of business assets

  5. Why might an owner prefer limited liability to unlimited liability?

    • It removes the need to keep accounts or records of business transactions
    • It allows the owner to take any amount of money from the business without limit
    • It reduces the personal financial risk if the business fails
    • It means the business never has to pay tax on its profits

  6. A private limited company owes £50,000 to suppliers and is unable to pay. Shareholders have invested £20,000. What is their maximum loss?

    • £20,000, the amount invested in shares
    • £70,000, the total of debts and investment together
    • £50,000, the full amount owed to suppliers
    • Nothing, because the company is never able to fail if it has shareholders

  7. Which type of liability applies to a partner in a partnership?

    • Unlimited liability, so each partner can be held personally responsible for the firm's debts
    • No liability at all, because partners are not legally responsible for any business debts
    • Limited liability, but only for debts that arise in the partner's own department of the firm
    • Limited liability, because every partner is protected by law from all debts of the firm

  8. Which of these is a disadvantage of unlimited liability for a sole trader?

    • The owner risks losing personal assets such as a house if the business fails
    • The owner can start trading quickly, with minimal legal paperwork and no registration fee
    • The owner keeps all profits and makes all of the decisions about how the business is run
    • The owner has complete control over how the business is run and who it employs

  9. Why do lenders often ask a small company's owner for a personal guarantee?

    • Because the bank wants to take ownership of the business without paying for it
    • Because limited liability means the owner has no assets to offer at all
    • Because a guarantee is needed for the business to be legally registered
    • Because it reassures the bank that the owner will repay if the business cannot

  10. Which of these best explains the term 'separate legal entity'?

    • A business has a single owner who is not allowed to employ anyone else and keeps all of the profit
    • A business is registered with the tax office and may then hire staff, but its owners remain fully liable
    • A company is treated in law as a distinct body from its owners, and can own assets and debts
    • A business has offices in more than one country and pays tax in each, but is still owned by one person

  11. A shareholder of a company paid £2,000 for shares. The company later goes bust. What is the most the shareholder can lose?

    • £2,000
    • £4,000, because shareholders must match the company's total debts
    • The full value of the shareholder's home and personal savings
    • £0, because shareholders are never liable for company losses

  12. A sole trader and a limited company both owe £15,000 to a supplier. Which statement is correct?

    • Neither business can be sued for debts, because both are protected by law from creditors
    • The sole trader's owner can ignore the debt because the business is small and has few assets
    • The sole trader's owner may lose personal assets, whereas the company's owners risk only their investment
    • The company's owners must pay the full £15,000 from their personal savings immediately upon demand

  13. Which statement about unlimited liability is correct?

    • It means the business is exempt from paying tax on its profits, whatever their size
    • It means the owners' personal wealth can be used to repay business debts
    • It means the business cannot take out any loans from banks, since it has no security
    • It applies only to companies that have more than fifty employees on their payroll each year

  14. Why might a business with high risk of debt prefer to become a limited company?

    • Because limited companies never have to pay wages or rent for premises
    • Because it allows the owner to avoid all taxes on profit in the future
    • Because it allows the owners to sell shares without any legal paperwork
    • Because it protects the owner's personal assets from business debts

  15. A partner in a firm with unlimited liability makes a bad decision that costs the firm £80,000. What does this mean for the other partners?

    • They may each be liable for the full debt, not just their share
    • They are not liable at all because the decision was made by one partner alone
    • They must pay £80,000 each because the debt is shared out equally across all owners
    • They are only liable for their own share of the loss, equal to £40,000 each

  16. Which of these is NOT a feature of limited liability?

    • Owners must personally pay all of the company's debts from their salaries
    • Owners' personal homes are generally protected from the company's business debts
    • Shareholders risk only the money they invested in buying shares in the company
    • The company can be sued in its own name, separately from the people who own it

  17. A small firm wants to take on a large contract with a major supplier that could lead to debts. Why would the owner consider limited liability?

    • It ensures the supplier will accept lower prices for goods bought on trade credit terms
    • It limits the owner's personal exposure, so the firm can take on more risk safely
    • It stops the owner from ever being required to repay any debts incurred by the firm
    • It means the owner can hire more staff without having to pay them wages or national insurance

  18. Which of these is most likely to be seen as a disadvantage of unlimited liability for a business owner?

    • The owner must register the business with Companies House every year
    • The owner has to share the profits equally with a sleeping partner
    • The owner must provide all the finance and keep full legal control of the business
    • The owner's personal savings and property may be taken to pay the business's debts

  19. Which statement best explains why a limited company can continue after a shareholder dies?

    • It continues only if the government passes a new law to keep it operating
    • It must cease trading immediately because its owners are no longer alive to make decisions
    • Its legal existence is separate from its owners, so it is not automatically dissolved
    • It continues because creditors agree to cancel all of the company's debts

  20. A sole trader borrows £10,000 to start a business and it fails with £14,000 of debts. What is the owner's position?

    • The owner owes £4,000, the amount above the loan borrowed
    • The owner owes £7,000, half of the debts, because two people usually share a business
    • The owner owes nothing, because the £10,000 loan is the limit of liability
    • The owner owes the full £14,000, because the liability is unlimited

All Pearson Edexcel Business quizzes