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Magento Multistore - no pages showing apart from Home page

Magento Multistore - no pages showing apart from Home page

I managed to set up another store (subdirectory). Home page works perfectly fine however, only home page is showing. After clicking on any link on the website, every page says

Object not found! The requested URL was not found on this server.

I noticed that it is probably problem with URLs as every link on the website does not show the right path - it is showing.

http://127.0.0.1/name-of-the-page/

instead of

http://127.0.0.1/name-of-the-folder/name-of-the-page/

Does anyone knows how I could solve this problem? I run out of options, I don't know what else to try to make it work.