GCE Economics 2022 Theory — Question 3

Model answer

(a) Limited Liability is a situation in which the debt or liability of an individual or a business is limited; it implies that a person or business cannot lose more than the amount they have invested in the business, in the event of liquidation or business failure. (b) Differences between a public joint-stock company and a private joint-stock company: 1. The public joint-stock company has a minimum of 7 members and no maximum number of membership, whereas the private joint-stock company has a minimum of 2 members (owners) and a maximum of 50 owners. 2. The public joint-stock company sells its shares to members of the public, whereas the private joint-stock company does not sell shares to members of the public. 3. The public joint-stock company can issue debentures to raise long-term loans from members of the public; the private joint-stock company does not issue debentures. 4. The public joint-stock company cannot commence business fully until it obtains its Certificate of Trading (in addition to the Certificate of Incorporation); the private joint-stock company can start business fully upon obtaining its Certificate of Incorporation and does not need a Certificate of Trading. (c) Sources of finance available to a sole proprietorship: 1. Personal savings 2. Loan from banks 3. Retained profit