Lesson 2.1.3

2.1.3 Limited and unlimited liability Quiz: Pearson Edexcel Business, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 2.1.3, Limited and unlimited liability: 20 multiple choice questions for the Pearson Edexcel Business (9BS0), Unit 2: Managing business activities, written with Revision Ninja.

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The 20 questions

  1. Under limited liability, what is the maximum potential loss for an investor?

    • All personal assets
    • Their initial investment
    • Future personal earnings
    • Total company debts

  2. Which business structure exposes its owner to unlimited liability for debts?

    • Sole trader
    • Public limited company
    • Private limited company
    • Worker co-operative

  3. A sole trader owes £50,000 but the business has only £20,000. How much personal wealth is at risk?

    • £20,000
    • £30,000
    • £50,000
    • £0

  4. What is the primary benefit of converting a business from a sole trader to a limited company?

    • Personal asset protection
    • Unlimited borrowing
    • Guaranteed bank loans
    • Zero business tax

  5. Which source of finance can limited companies use that sole traders cannot?

    • Bank loans
    • Trade credit
    • Bank overdrafts
    • Share capital

  6. What type of liability do partners in an ordinary partnership have for business debts?

    • Unlimited liability
    • No liability
    • Shared liability
    • Limited liability

  7. Which method of finance allows an unincorporated business to use equipment without buying it outright?

    • Retained profit
    • Share capital
    • Venture capital
    • Leasing

  8. What limits the financial risk of shareholders in a private limited company?

    • Unlimited liability
    • Personal guarantees
    • Limited liability
    • Government subsidies

  9. What major financial risk do sole traders face if their business fails?

    • Director disqualification
    • Forfeited dividends
    • Personal asset loss
    • Share price drop

  10. Which source of finance is best suited to a limited company raising large equity funds?

    • Share capital
    • Bank overdraft
    • Personal savings
    • Trade credit

  11. What is the maximum financial risk faced by an investor in a limited company?

    • Company total debts
    • All personal assets
    • Unlimited financial loss
    • Amount invested

  12. If a private limited company suffers an unrecoverable £40,000 bad debt, who suffers the loss?

    • The local council
    • The company itself
    • The company directors
    • The shareholders personally

  13. Why do banks often request a personal guarantee from a limited company director for a loan?

    • To avoid taxation
    • To increase liquidity
    • To reduce risk
    • To grant equity

  14. Which type of business organisation can issue shares to raise external capital?

    • Limited company
    • Partnership
    • Sole trader
    • Unincorporated business

  15. What are owners personally liable for under an unlimited liability business structure?

    • Fixed costs only
    • Corporation tax only
    • Initial investment only
    • All business debts

  16. Which asset type can a sole trader lose if their business expansion fails and enters insolvency?

    • Dividends paid
    • Share capital
    • Personal assets
    • Retained profit

  17. Which feature of a limited company reduces investor risk and encourages equity investment?

    • Personal liability
    • Limited liability
    • Partnership agreement
    • Unlimited liability

  18. What advantage does an unlimited liability business structure offer to potential lenders?

    • Personal asset claims
    • Tax relief options
    • No default risk
    • Guaranteed profits

  19. Which business structure limits an investor's potential losses strictly to the money they invested?

    • Unincorporated enterprise
    • Private limited company
    • Sole trader
    • Ordinary partnership

  20. What further financial liability does a shareholder have once their shares are fully paid?

    • Business bank debt
    • Unpaid trade bills
    • Nothing
    • Personal property

All Pearson Edexcel Business quizzes