Business Structure - Sole trader and Partnerships Flashcards
Define the following:
Sole Trader
A sole trader is a business which is owned and operated by one person. The size of the business can vary and could be a sole source of income or supplementary income.
Answer the following:
Advantages of a Sole Trader
Give 4 pros:
- Responsible for making all the decisions (Own Boss)
- Owner does not have to share profits
- Least expensive form of business ownership to establish
- Winding up the business is simple
Answer the following:
Three types of business operations:
*Make a list
- Service
- Manufacturing
- Retail/Mechandising
Define the following:
Service
Define what this type of business does:
- Offers a service
- Can usually be less costly as they do
not have to buy inventory.
Define the following:
Manufacturing
Define what this type of business does:
- Produces a product and then sells it to a retailer
Define the following:
Retail/Mechandising
Define what this type of business does:
A retail business is one which buys
goods already manufactured and then
sells them for a higher price.
Answer the following:
Three structures of operating a business
*Make a list
- Sole Trader
- Partnership;
- Small proprietary company
Answer the following:
Disadvantages of a Sole Trader
Give 3 cons:
- The business is not a separate legal entity; therefore, the owner is liable for all debts and losses
- Owner has unlimited liability, so in the event the business incurs a debt, the bank will seize personal assets
- If owner ill, will be problematic if no one is available to replace them.
Define the following:
Partnership
A partnership is a business owned and operated by two or up to twenty people.
Answer the following:
Advantages of a partnership:
Give 3 pros:
- Are cheap and easy to set up
- Allows workload to be shared
- Minimal government regulations
Answer the following:
Disadvantages of a partnership:
Give 3 cons:
- Unlimited liabilities
- Difficult to find a partner suitable to you
- Issues can arise when one partner leaves the business
Define the following:
Company
A company is a much more expensive and complex business
structure. It generally suits people who expect their business income
to be highly variable.
Answer the following:
Advantages of a small proprietary company:
Give 2 Pros:
- Is a separate legal entity
- Shareholders are not liable for the company’s debt
Answer the following:
Disadvantages of a small proprietary company:
Give 5 cons:
- Subject to greater regulation
- Set up, and administration costs are high
- Are difficult to end
- Must have at least one director
- ASIC regulations
Business name registration Act 2011:
A business name is a name or title under which a person or legal entity trades. A business can:
- Trade under its own name
- Under a simplified version of its own name
- under an entirely different name
Under the business names registration act 2011 a business cannot be registered with:
- A name that is identical or nearly identical to another company or business
- A name that has already been registered
- A name that is likely to be offensive
GST act 1999:
The goods and services tax is a broad based tax of 10% that is charged on most goods and services.
- A business that has annual sales of $75,000 or more ($150,000 for non-profit organisations) must register with the ATO to collect GST and must charge GST on the products and services it provides, unless they are deemed GST-free.
Bankruptcy:
A person is insolvent if they cannot pay their debts when they become due. Personal insolvency is covered by the Bankruptcy Act 1966 and is commonly referred to as bankruptcy.
Debt agreement:
A debt agreement is a contract between an individual and their creditors. The agreement must be accepted by the majority of the creditors in terms of the amount of money owed.
Personal insolvency agreement:
A personal insolvency agreement is a contract between an individual and their creditors to repay part or all of the amount owing. Such an agreement must be approved by a special resolution of the creditors. This requires a 75% majority in favour of the resolution based on the dollar value of the amount owed.
Voluntary Bankruptcy:
A person who is unable to make a repayment agreement with his/her creditors can petition for bankruptcy. Once a person has become bankrupt the assets that they have will be sold to repay their debts.
Involuntary bankruptcy:
Involuntary bankruptcy occurs when a creditor applies to a court to have a person made bankrupt. Most of the assets of the debtor are then sold to repay the creditors.
