Business foundations sac 1A Flashcards
What is a business?
- lawful commercial activities
- aims to satisfy the wants and/or needs of consumers
- aims to make a profit
Types of businesses: sole trader
- one individual owns the business
- sole person legally responsible for all aspects of the business
- has unlimited liability
Types of businesses pros and cons: sole trader
Pros
- simple and inexpensive to set up
- owner keeps all profits
- owner has complete control
Cons
- burden of managing entire business
- unlimited liability
- difficult to gain finance
Types of businesses: partnership
- 2-20 individuals who carry the business together, shared control and management
- has the same legal entity as the owners
- requires a seperate tax file number
- unlimited liability
Types of businesses pros and cons: partnership
Pros
- simple and inexpensive to set up
- workload can be shared among partners
- risk/debt can be shared among partners
Cons
- unlimited liability
- potential disagreement over key decisions
- profits are shared among partners
Types of businesses: private limited company
- incorporated business owned by up to 50 shareholders
- controlled by director
- shares aren’t freely available to the public
- has limited liability
- has ‘Pty’ after its name
Types of businesses pros and cons: private limited company
Pros
- limited liability
- life of company can live longer than directors
- pay company tax rate
Cons
- more complex and expensive to set up
- shares cannot be traded freely
- more reporting requirements to the owners and government
Types of businesses: public listed company
- owned by shareholders
- shares can be purchased or sold on an open market
- listed on the stock exchange
- public has access to buy and trade the shares
- limited liability
- has ‘ltd’ at the end of their name
Types of businesses pros and cons: public listed company
Pros
- limited liability
- life of company can live longer than directors
- easier to raise more capital by selling shares to the public
Cons
- high costs in establishment
- possible loss of control
- highly complex and time consuming to establish
Types of businesses: social enterprise
- primarily exists to fulfil a vision that benefits the community or a social need
- profit is used towards a social cause e.g. thank you
- can be self sustaining or rely heavily on grants and donations
Types of businesses pros and cons: social enterprise
Pros
- metting a social need can encourage community support, increasing profits
- improved morale as employees value the work they are doing
Cons
- difficult to obtain finance to begin the business
- difficult to focus on financial and social objectives
Types of businesses: government business enterprise
- owned and operated by the government
- commonwealth entity, that unlike government department aims to act under general business principles
- aims to make a profit e.g. Aust post
Types of businesses pros and cons: government business enterprise
Pros
- provides healthy competitions to private sectors
- may invest in areas private sectors may hesitate in
Cons
- can be political interference
- may not be as productive as private sector business (possible lack of accountability)
- strategic directors can change with changing governments
what are business objectives?
- goals the business is aiming to achieve in the future
- give the business a sense of purpose and direction
- having measurable objectives can help give clarity for people within the business
Types of objectives (5)
- profit
- increase market share
- fulfilled a market need
- meet shareholder expectations
- fulfil a social need
Types of objectives: profit
- surplus remaining after total costs are deducted from total revenue
- basis on which tax is calculated and dividends are paid
- important so the business can survive and grow
Types of objectives: increase marketshare
- percentage/portion of the total sales the business has in an industry for a particular good or service
Types of objectives: fulfil a market need
- a market is a specific group that has similar characteristics
- a need is a groups desire for a specific product or benefit
- identifying what customers require allows the business to build a market for their goods
Types of objectives: meet shareholder expectations
- those that own the business
- expect to make a return on their investment through capital gains and dividends
- capital gains: the value of the business increases
- divid ends: individuals share in the companies profits
Types of objectives: fulfil a social need
- focused on the community
- how the business can improve the lives of others
What is a stakeholder?
- have a vested interest in the business
- managers need to consider different interests when making decisions
- can be from inside and outside the business
what is corporate social responsibility?
- going above and beyond legal obligations
- ongoing commitment
- operating in a economically, socially, environmentally sustainable manner
- important to consider CSR when dealing with stakeholders
Types of stakeholders, their interest and their CSR interest: owners/shareholders
- those that own the business
- interest is they want a return on their investment
- CSR interest is the business should ensure the shareholders investment is safe and keep them informed about business operations and prospects
Types of stakeholders, their interest and their CSR interest: directors
- responsible for managing the company’s overall business activities
- interest is to expect to be well remunerated
- CSR consideration: ethical remuneration