Unit 6: Business Structures and Corporate Governance

Question 1

What are the four business structures?

Answer 1

1. Sole trader
2. Partnership
3. Company
4. Trust

Question 2

What is a sole trader? (And what are some features)?

Answer 2

A sole trader business structure is an individual person trading as the individual legally responsible for all aspects of the business.

• Full control
• Individual TFN
• Unlimited liability
• No separate bank account
• Offset losses
• Employee obligations

Question 3

What is a parntership? (And what are some features)?

Answer 3

Business structure involving 2-20 individuals.

• Easy set-up
• Unlimited liability
• Shared control
• Partnership does not pay tax (but does have partnership tax return)
• Partners responsible for their own super
• Each individual must be GST-registered

Question 4

What is a company? (And what are some features)?

Answer 4

Separate legal entity with same rights as a natural person.

• Can incur debt, sue, and be sued.
• Owners are shareholders
• Limited liability
• Must be registered with ASIC
• Corporations Act 2001
• Earnings belong to the company
• May need to register for GST
• Requires annual tax return

Question 5

What is a trust? (And what are some features)?

Answer 5

An where a person or company (the trustee) holds assets (trust property) in trust for the benefit of others (the beneficiaries). For example, a super fund is a special type of trust, set up and maintained for the sole purpose of providing retirement benefits to its members (the beneficiaries). Family trusts are also common business operating structures.

• Require formal trust deed (outline objectives, who can be member, and whether benefits can be paid as lump sum or income stream).
• Trustee administers assets on behalf of beneficiaries
• If business is a trust, the trustee is legally responsible for its operations.

Question 6

Why are trusts formed?

Answer 6

Usually to safeguard assets and allow beneficiaries to earn income related to those assets.

Question 7

What is corporate governance?

Answer 7

How corporations are governed by Board of Directors, Senior Management, and other employees.

Question 8

What are four elements of governance?

Answer 8

1. Ethics
2. Risk
3. Compliance
4. Administration

Question 9

What are 4 issues corporate governance is typically concerned with?

Answer 9

1. Effectiveness/efficiency of operations
2. Reliability of financial reporting
3. Compliance with laws/regulations
4. Safeguarding of assets

Question 10

What are 5 things compliance and risks management teams are responsible for?

Answer 10

1. Risk appetite
2. Risk performance and control environment (including capital adequacy)
3. Regulatory environment
4. Risk culture
5. Capability and capacity

Question 11

What are 4 teams that will generally report to a Chief Risk Officer?

Answer 11

1. Credit Risk
2. Market Risk
3. Operational Risk
4. Data and reporting

Question 12

What does the following team do: Credit risk?

Answer 12

Manage risks related to credit portfolio and creditors (borrowers); manage credit policies, procedures and systems; provide credit training

Question 13

What does the following team do: Market risk?

Answer 13

Manage changes in market prices and impacts on funding, liquidity and the balance sheet

Question 14

What does the following team do: Operational risk?

Answer 14

Manage day-to-day business operations, including compliance with laws, regulations, codes of conduct or standards of best practice

Question 15

What does the following team do: Data and reporting?