Business Structure - Sole trader and Partnerships

Question 1

Define the following:

Sole Trader

Answer 1

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.

Question 2

Answer the following:

Advantages of a Sole Trader

Give 4 pros:

Answer 2

• 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

Question 3

Answer the following:

Three types of business operations:

*Make a list

Answer 3

• Service
• Manufacturing
• Retail/Mechandising

Question 4

Define the following:

Service

Define what this type of business does:

Answer 4

• Offers a service
• Can usually be less costly as they do
  not have to buy inventory.

Question 5

Define the following:

Manufacturing

Define what this type of business does:

Answer 5

• Produces a product and then sells it to a retailer

Question 6

Define the following:

Retail/Mechandising

Define what this type of business does:

Answer 6

A retail business is one which buys
goods already manufactured and then
sells them for a higher price.

Question 7

Answer the following:

Three structures of operating a business

*Make a list

Answer 7

1. Sole Trader
2. Partnership;
3. Small proprietary company

Question 8

Answer the following:

Disadvantages of a Sole Trader

Give 3 cons:

Answer 8

• 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.

Question 9

Define the following:

Partnership

Answer 9

A partnership is a business owned and operated by two or up to twenty people.

Question 10

Answer the following:

Advantages of a partnership:

Give 3 pros:

Answer 10

• Are cheap and easy to set up
• Allows workload to be shared
• Minimal government regulations

Question 11

Answer the following:

Disadvantages of a partnership:

Give 3 cons:

Answer 11

• Unlimited liabilities
• Difficult to find a partner suitable to you
• Issues can arise when one partner leaves the business

Question 12

Define the following:

Company

Answer 12

A company is a much more expensive and complex business
structure. It generally suits people who expect their business income
to be highly variable.

Question 13

Answer the following:

Advantages of a small proprietary company:

Give 2 Pros:

Answer 13

• Is a separate legal entity
• Shareholders are not liable for the company’s debt

Question 14

Answer the following:

Disadvantages of a small proprietary company:

Give 5 cons:

Answer 14

• Subject to greater regulation
• Set up, and administration costs are high
• Are difficult to end
• Must have at least one director
• ASIC regulations

Question 15

Business name registration Act 2011:

Answer 15

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

Question 16

GST act 1999:

Answer 16

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.

Question 17

Bankruptcy:

Answer 17

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.

Question 18

Debt agreement:

Answer 18

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.

Question 19

Personal insolvency agreement:

Answer 19

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.

Question 20

Voluntary Bankruptcy:

Answer 20

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.

Question 21

Involuntary bankruptcy:

Answer 21

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.