Business Foundations Flashcards
what is a sole trader? and what are advantages and disadvantages?
Where a business is owned and operated by 1 person, there may be employees (<20) but the owner is responsible for making decisions and providing finances required to operate.
**Advantages: **keeps all profits, handles all decision making, simple to set up and low cost.
Disadvantage: unlimited liability, stress and long hours and owner must do a variety of tasks, hard to raise finance for expansion
what is a partnership? what are advantages and disadvantages?
a business owned by 2 or more people (generally max 20), but accountants can have up to 400 partners. partnership agreement can be verbal or in writing (best to be in writing in case of disputes)
Advantages: low cost, shared responsibility and workload, pooled funds and talent, taxed on personal income, business continues after death of a partner
**Disadvantages: **unlimited liability, split profits, possibility of disputes
what is a private limited company? what are advantages and disadvantages?
an incorporation business that has a minimum of 1 shareholder and max of 50 non-employee shareholders. it is small to medium sized and usually a family run business. Must have one director (overall management over business activities).
Advantages:limited liability, easier to attract finance, easy transfer of ownership, experienced management (BoD), growth potential
Disadvantages: more costly compared to sole trader/partnership, company taxed on profits, required to produce audited annual reports, personal liability for business debts if director knew debts could not be repaid
what is a public listed company? what are advantages and disadvantages?
An incorporated business with a minimum of one shareholder (and no maximum), and whose shares are openly traded on the ASX (Australian securities exchange). Must have 3 directors and is required to publish audited financial accounts in annual report.
advantages: can attract additional finances through issuing shares which could lead to growth
disadvantages: complex structure and more accountability and compliance with laws and regulations
what is a social enterprise? what are advantages and disadvantages?
a business with the objective of fulfilling social needs, it could address: opportunities for unemployed, developing skills and provide training to disadvantaged people, provide essential services to disadvantaged communties, focus on waste minimisation.
advantages: can open up new markets, could have a positive effect on profit or market share
disadvantages: difficult to obtain capital to start business, significant operating costs, can be difficult to focus on both social and financial objectives
What is a Government Business enterprise (GBE)? and what are advantages and disadvantages?
a business that is government owned and operated. they operate to make a profit and increaase assets and returns to shareholders. They carry out government policies whilst also delivering community services (e.g. Aus Post, Vic roads, nbn)
advantages: can operate with some independence, provide healthy competition to businesses operating in private sectors, can carry government policies and community services in areas where private sectors may not invest in.
disadvantages: Political interference in the day-to-day operation of the GBE, - Inefficiencies caused by government ‘red -tape’ - excessive regulation or rigid conformity to rules, Management of GBEs can be less effective than that of the private sector, There can be less accountability within GBE resulting in less productivity
what is incorporation?
a process a business must go through if they want to be a registered company and a seperate legal entity from the owner/shareholder. gives the benefits of limited liability and if the company is ever liquidated the shareholders cannot be forced to sell their personal assets to pay off the debts of the business .
what is a business?
any activity conducted by an individual or individuals to produce and sell goods and services that satisfy the needs of society, as well as making profit.
what is unlimited and limited liability?
unlimited liability: the owner is personally responsible for all debts of the business
limited liability: the owner/shareholders are seperate entities from the business and is therefore will not have to sell personal assets, personal assets are not at risk
