9.1 NATURE OF BUSINESS - Type of business (COB) Flashcards
Classification of Business size: SMALL
CHARACTERISTICS:
- Fewer than 20 employees
- Corner store
- Independently owned and operated by 1 or 2 people
- Sole trader/ partnership
- Owner responsible for all decisions
SOURCE OF FINANCE: Equity finance (owner own savings/funds raised by own owner) Debt finance (obtained from financial institutions; loan) – difficulty in accessing loans
Classification of Business size: MEDIUM
CHARACTERISTICS:
- 20 to 199 employees
- Services club
- Owned and operated by a few people and/or private shareholders
- Partnership/ private company
- Owner responsible for majority of decision making
SOURCE OF FINANCE:
- Owners/partners own savings or a loan and/or private shareholders
- Equity and debt finance
Classification of Business size: LARGE
CHARACTERISTICS:
- 200 or more employees
- Woolworth’s, Qantas
- Owner by thousands of owners (franchise)
- Public company
- Complex decision making due to division of responsibilities and layers of management.
SOURCE OF FINANCE:
- cash reserves
- retained profit
- sale of shares
- loans from domestic and overseas institutions
Local business
Has a very restricted geographical spread; it serves the surrounding area
- Local business is very restricted
- Serves a suburb
- Personal relationship with customers
- Majority of local businesses are SME
- E.g. local chemist
National business
Operates within just one country
- Operates in one country
- Well known by most Australian’s
- Operates in all Australian states
- E.g. Commonwealth Bank
Global business
Large company that has branches in many different countries (franchise)
- Commonly known as a transnational business
- Has offices in many countries around the world
- Head office is based in their home country
- E.g. McDonalds
Business industry: Primary
Industries that exploit natural resources (grown, dug or caught) and produce raw materials
e.g. cotton, fruit, gold, coal, fish, prawns, birds
Business industry: Secondary
Industries that process raw materials into a finished or semi-finished product
e.g. thread, flour, fruitcake, bread, furniture, jewellery
- RAW MATERIALS –> FINISHED PRODUCT
- PRIMARY –> SECONDARY
Business industry: Tertiary
Products sold to retailers which are then sold to customers.
(industries that DISTRIBUTE FOOD AND PROVIDE SERVICES)
QUATERNARY INDUSTRY: Industries that provide INFORMATION based services
e.g. journalism, teaching, banking
QUINARY INDSUTRY: Industries that provide HOUSEHOLD services
e.g. carpet cleaners, childcare, restaurant
Legal structure
Definition: Business ownership structure or business form.
TYPES OF LEGAL STRUCTURE:
- Unincorporated business
- Incorporated business
- Sole trader
- Partnership
- Private and Public company
- Government enterprise
Unincorporated business factors
- Owner and business are one
- The owner’s assets are linked to the business assets
- Owner has unlimited liability- if the owner goes bankrupt, the creditors can take the owners personal assets and sell them to receive money for debt
EXAMPLES: Sole Trader and Partnerships
Incorporated business factors
- The business owner and the business are separate entities
- The business assets and owner’s personal assets are separate
- Incorporated businesses have limited liability- owners can only lose what they have invested in the business
- Business is its own entity- it can be sued/it can sign contracts etc.
- Owners are called shareholders (part owner of a business)
EXAMPLES: Private Companies (Pty Ltd) and Public Companies (Ltd)
Sole trader characteristics
Owned and operated by ONE person.
- UNINCORPORATED business entity.
- Owner takes the responsibility for everything (Finance, decision making)
- business and legal aspects have the same legal entity - IF BUSINESS IS SUED = OWNER SUED.
- UNLIMITED LIABILITY
Partnership characteristics
Owned and operated between 2 to 20 people.
- Unincorporated business entity
- Owner and business are regarded as the SAME
- UNLIMITED LIABILITY
Private company (Pty Ltd) characteristics
An incorporated business that has 1 to 50 shareholders
- Must have words “Pty Ltd” after it.
- Investments offered to those people the business wishes to have as part (family, friends, etc.)
- LIMITED LIABILITY: they can only loose the amount they’ve invested.
- Private company has to have director
- Has to pay 28.5% of flat tax
