2. Types of Businesses

Question 1

What are the 4 ways to classify a business?

Answer 1

By:
- Size
- Geographical spread
- Industry sector
- Legal structure

Question 2

What are the 4 quantitative measurements used to determine the “size” of a business?

Answer 2

1. Number of employees.
2. Number of owners.
3. % of total market share.
4. Legal structure.

Question 3

What are the qualitative measurements that can be used to determine the “size of a business?”

Answer 3

1. Does the owner make most decisions?
2. Does the owner provide most of the capital?
3. How much control does the business have within the market?

Question 4

What are microbusinesses?

Answer 4

• A type of small business with under 5 employees.
• Operate out of a SOHO (small office/home office).
• Make up about 90% of the small business sector.

Question 5

What are the 3 ways to classify businesses in terms of geographical spread?

Answer 5

1. Local
2. National
3. International/global

Question 6

Describe the “primary sector.”

Answer 6

The primary industry sector includes all those businesses in which production is directly associated with natural resources. Examples include all types of farming, mining, fishing and forestry. Though its contribution to employment is small (due to the need for labour being quite low since we have machines now), it is important because it provides our food requirements and is responsible for around 60% of our exports.

Question 7

Describe the “secondary sector.”

Answer 7

The secondary industry sector includes all those businesses that transform raw materials produced by primary industries into finished or semi-finished products. Examples include iron and steel production, motor vehicle manufacturing, textiles, energy companies, breweries, engineering and construction. Construction is the second largest employer in Australia.

Question 8

Describe the “tertiary sector.”

Answer 8

Businesses in the tertiary sector provide services to consumers and to other sectors. Examples include transport, entertainment, restaurants, banking, insurance, tourism, healthcare, law, etc. Over the past 50 years, this sector has grown so rapidly, to the point where it includes ⅔ of businesses and ¾ of employment in Australia. Because it is so large, it has been subdivided into 2 other sectors:

Question 9

Name the two sub-sectors of the tertiary industry and define them.

Answer 9

1. Quaternary: knowledge and information-based services. e.g telecoms, real estate, IT, financial planning
2. Quinary: services traditionally performed in the home e.g cleaning, ironing, lawn-mowing, hospitality, childcare

Question 10

What are the 4 legal structures?

Answer 10

1. Sole trader
2. Partnership
3. Private company
4. Public company

Question 11

Define “incorporation.”

Answer 11

The process whereby a business becomes a company.

Question 12

What are the key differences between unincorporated and incorportated businesses?

Answer 12

The biggest difference that comes within incorporation is that owners of the company legally have separation from the business. The owners are the business in unincorporated businesses.

Additionally, incorporated businesses pay a company tax. Unincorporated business owners simply pay income tax.

Question 13

Define “unlimited liability.” How is it different from limited liability?

Answer 13

If a business is unable to repay or defaults on its debt, the owner’s personal wealth can be seized to cover the balance owed. Limited liability, on the other hand, is where the owners are not personally liable. The bank can repossess any assets of the business if they are unable to repay a loan, but they cannot come after the personal assets of the owner.

Question 14

Why might one choose to remain an unincorporated business?

Answer 14

• The process of incorporation is very expensive and takes a long time.
• Companies have a lot more reporting that needs to be done to the government.

Question 15

What is privatisation?

Answer 15

The act of converting a government business into a public business.

Question 16

What is the aim of a government business? What is the aim of a public business?

Answer 16

A government business aims to provide the highest quality services to the community. A public business, on the other hand, aims to maximise profits.

Question 17

In what case must the owner of a sole trader register the name of their business?

Answer 17

If the name of the business does not have the owner’s name in it.

If Jane Doe names her business “Jane Doe’s Nails,” there is no need to register the name of her business.

Question 18

What are the 3 factors what might affect one’s choice of legal structure for their business?

Answer 18

1. Size: small businesses carry small risks; therefore it is better to stay unincorporated as it is cheaper to run and set up. For larger businesses, it is recommended that they become incorporated to attain the benefits of limited liability.
2. Ownership: very straightforward: one owner; sole trader, 2-20 owners partnership, up to 50, possibility private, thousands of owners; public.
3. Finance: if finances are quite high, i.e, large amounts of money are required for maintaining the business, then it may be more suitable to become a public company. If costs are easily manageable, then it could be better to stay a sole trader or partnership.

Question 19

How can you determine if a business is a private company?

Answer 19

If it has “pty ltd” in its name, then it is a private company. If not, it may not even be a company.

Pty Ltd stands for proprietary limited.

Question 20

How are sole traders and partnerships similar?

Answer 20

They both have unlimited liability - the owner/s are not legally separate from the business.

Question 21

What is a limited partnership?

Answer 21

Limited partnerships are where one or more partners contribute financially to the company but take no part in the partnership. This is to add more capital or finance to an existing partnership. Typical partnerships are where there’s owners that contribute to finance and participate together in the ownership.

Question 22

Why is it important for a business to choose the right legal structure?

Answer 22

Choosing the appropriate business structure can significantly impact various aspects of a business, such as tax payments, asset protection, ongoing expenses, and compliance obligations. The decision must align with the current conditions of the business and its goals.

Question 23

What are SMEs?

Answer 23

Small to medium enterprises (SMEs): fewer than 200 full-time equivalent employees and/or less than
$10 million turnover