1.2 types of business

Question 1

sole trader

Answer 1

small business owned and operated by a single proprietor, often with primary objective of making a profit

Question 2

advantages of sole traders

Answer 2

• Owner has complete control
  
  • Eg. Full control of assets and decision making - whether profits go back into them or the business
• Owner can keep all net profits
• No partner/owner disputes

Question 3

disadvantages of sole trader

Answer 3

• unlimited liability (personal assets may be in risk if the business goes under)
• May be a large burden
• Does not have perpetuity - end of business when owner dies

Question 4

partnerships

Answer 4

type of business where 2 - 20 people combine their knowledge, time and capital to own and operate a business.

Question 5

advantages of partnerships

Answer 5

• Workload can be shared among partners based on different skills and expertise
• Risk or debt is shared
• Have perpetuity: on death of one partner, business can keep going

Question 6

disadvantages of partnerships

Answer 6

• Unlimited liability
  
  • Business debt may be required to be paid off through personal assets
• Potential disagreements and disputes
• Need to share profits

Question 7

private listed companies

Answer 7

business structure where business is a separate legal entity to its owners. The ownership is split into shares which are traded privately with the permission and approval of other shareholders.

Question 8

advantages of private companies

Answer 8

• Limited liability
  
  • Shareholders are only liable for the shares that they’ve purchased
• Separate legal entity - the company and owner can keep their finances separated
• Company is bigger than the directions

Question 9

disadvantages of private limited companies

Answer 9

• cost of formation - More complex and expensive to establish
• public disclosure - reporting of certain information
• Shares cannot be traded freely
  
  • All shareholders must agree before a share can be traded

Question 10

public companies

Answer 10

company has members who own the company and directions who run it.
- max 50 shareholders

Question 11

advantages of public companies

Answer 11

• Limited liability
  
  • Shareholders are only liable for the shares that they’ve purchased
• Separate legal entity
• Open for anyone as up to ASE

Question 12

disadvantages of public companies

Answer 12

• Highly complex and time consuming to establish
• High costs in establishment
• Potential loss of control

Question 13

social enterprise

Answer 13

private sector business that exists with the intent of achieving social objectives rather than for the benefit of its shareholders.

Question 14

advantages of social enterprises

Answer 14

• Meeting social needs can increase community support thus increasing profits
• Improved morale within the business as employees value the work

Question 15

disadvantages of social enterprises

Answer 15

• Difficult to balance financial objectives and social objectives
• Can be difficult to raise initial capital

Question 16

GBE

Answer 16

government owned and operated business - commonwealth entity or company that unlike a government department aims to act under general business principles and rather to make a profit

Question 17

advantage of GB

Answer 17

• Can rely on the government for initial investment
  
  • Can be substantial
• Provides healthy competition to private sectors
• able to carry out government policies delivering community services in areas where private businesses might hesitate to invest

Question 18

disadvantages of GBE

Answer 18

• less accountability within a GBE, resulting in less productivity
• Political interference may occur
• Management may be less effective than of private sector