ACCA Applied Skills · Corporate and Business Law (Global) · Business, political and legal systems
Amara plans to start a small trading business on her own, with no separate legal entity. She will keep all profits but wants to understand her legal position. Which statement correctly describes her liability?
A sole trader has unlimited personal liability because the business is not legally separate from the owner. Creditors can claim against her personal assets to settle business debts. Limited liability and separate legal personality apply to incorporated companies, not to unincorporated sole traders.
- AShe has unlimited personal liability for the business debtsCorrect
- BHer liability is limited to the capital she invests in the business
- CShe has no liability because the business is a separate legal person
- DShe is liable only for debts incurred after the first year of trading
Explanation
A sole trader has no separate legal personality from the business. The owner is therefore personally liable without limit for all business debts, and her personal assets can be used to pay creditors. Limited liability is a feature of incorporated entities, not sole traders.
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