Chapter 2 - Types Of Business Flashcards
Types of legal structure
- private company
- public company
- partnership
- sole trader
Types of business sizes
- micro-business
- small
- medium
- large
Types of geographical spread
- local
- national
- global
Types of industry sector (there are 5)
- primary
- secondary
- tertiary
- quaternary
- quinary
How you can determine the size of a business
- number of employees
- number of owners of the business
- market share (the proportion of total market shares the business has compared to competitors)
- the legal structure
What is market share
The proportion of total market shares the business has compared to competitors
How descriptions help you know if the business is small or medium
- the owner makes most management decisions (e.g. who to hire, what to produce, how to advertise)
- the owner provides most of the capital (finance)
- the business has little control within the market
- it is independently owned and operated
- the business is locally based, and only in the one location
Number of employees a small business has
Fewer than 20 employees
Number of employees a medium business has
20-199 employees
Number of employees a large business has
200 or more employees
Most common legal structure(s) for a small business
- sole trader
- partnership
Most common legal structure(s) for a medium business
- partnership
- private company
Most common legal structure(s) for a large business
- public company
What is an enterprise
It’s just another name for business
How is a business labelled as an SME?
- defined by the ‘Australian Bureau of Statistics’
- firms with less than 200 full-time equivalent employees AND/OR less than $10 million turnover
Number employees in a micro-business
Fewer than 5 people (including the owner)
What is a SOHO
Small Office Home Office
Why do national businesses become global businesses
- A national business will expand and increase it sales, but will eventually run out of nee customers to sell to; that is, the domestic market becomes saturated.
- To continue expanding, it must tap into new markets.
Describe the primary industry
The businesses involved in the collection of natural resources
E.g. farming, grazing, mining, forestry
Facts about the primary industry
- only takes up 4% of labour force
- provides 100% our food requirements
- approximately 60% of all our exports come from these industries
Describe the secondary industry
- involves taking a raw material and making it into a finished or semi-finished product
- e.g. iron, coal, limestone and ore turned into steel (semi-finished product), which is then used to manufacture cars
Describe the tertiary industry
Involves performing a service to other people
E.g. dentists, retailers, museums, health workers
Describe the quaternary industry
- services that involve the transfer and processing of information and knowledge
E.g. teaching, telecommunication, property, computing, finance
Describe the quinary industry
- all services that have traditionally been performed in the home. It includes both paid and unpaid work.
- e.g. hospitality, childcare, tourism
What two groups has the tertiary industry been divided into?
- quaternary
- quinary
Is a sole trader unincorporated or incorporated?
Unincorporated
Is a partnership unincorporated or incorporated?
Unincorporated
Is a private company unincorporated or incorporated?
Incorporated
Is a public company unincorporated or incorporated?
Incorporated
What does incorporated mean
Refers to the process companies go through to become a separate legal entity from their owner(s)
What does unincorporated mean
It isn’t a separate legal entity to its owner(s)
Advantages of a sole trader
- managerial freedom to make all decisions
- simple management structure
- retain all profits made from business
- low cost of entry
- less government regulations
Disadvantages of sole trader
- unlimited liability
- is owner lacks skills in all aspects of managing can result in poor decision making
- limited capital for expansion
Explain a sole trader
- ownership by 1 person (not 1 worker!)
- funding by owner -> own capital and some borrowings
- unlimited liability
Explain a partnership
- a business owned and operated by 2-20 owners with aims of making a profit
- unlimited liability
Advantages of a partnership
- share responsibilities and workload
- low start up costs
- less costly to operate than a sole trader
- death of one partner won’t lead to cessation of the business activities
Disadvantages of partnership
- unlimited liability
- problems of join decision making (conflict)
- have to share profits
What does LTD mean
Limited liability
What does Pty mean
Public company
What does Pty Ltd mean
Proprietary limited company (private)
Do ALL companies go through incorporation?
Yes
What is perpetual succession
Where the company will still exist is the owners change or die
Explain a private company
Usually has between 2-50 private shareholders
Registered with ASIC
Has a board of directors that MUST act in businesses favour
Shares aren’t available to the public
It has perpetual existence so the owners can change
Advantages of a private company
- limited liability so can only lose the money they put in
- perpetual succession
- able to raise money by selling shares
Disadvantages of a private company
- more expensive to set up
- could be hard to expand and find more shareholders
- reporting requirements
Explain a public company
- listed on Australian Securities Exchange and may be bought and sold by members of the public or other businesses
Advantages of public company
- potential for larger capital base (more shareholders)
- limited liability
Disadvantages of public company
- more expensive to set up
- strict reporting requirements
- annual external audit of accounts required
- potential for a hostile takeover
- large number of shareholders = possible loss of control, possibly making decision-making harder
What 4 ways can a business be classified?
- legal structure
- size
- industry sector
- geographical spread
How does a business become incorporated
- company name must be registered with the Australian Securities and Investments Commission (ASIC)
- ASIC will then issue a certificate of incorporation and an Australian Company Number (ACN)
- directors must be appointed to run the company on behalf of its owners
What is a propriety company
Private
Does a public company HAVE to have at least one shareholder
YES
How many directors must a public company have
A minimum of three directors (two of which must live in Australia)
Describe a government enterprise
- government-owned and operated businesses
- e.g. NSW Trains, Medibank Private, Australia Post
- often referred to as public sector businesses
Give an example of a GBE (Government Business Enterprise) that went through privatisation
- Qantas
- Telstra
- Commonwealth Bank
What is privatisation
- the process of transferring the ownership of a government business to the private sector
Three things that influence the choice of legal structure
- size of business
- ownership
- finances
What legal structure would suit a small or micro-business
Sole trader
Partnership
If a sole traders business grows, what might they do?
- a partnership or private company might be formed with the new partners or private shareholders bringing with them extra finance, skills and expertise
What is a float?
The raising of capital in a company through the sale of shares to the public
What type of legal structure can have a float?
ONLY a public company
NOT a sole trader, partnership or private company
What is a prospectus
A document giving details of a company and inviting the public to buy shares in it
What legal structure should be chosen if the owner wishes to have complete control
Sole trader
Or (possibly)
Private company (owner must own more than 50% of shares)
What is the max number of shareholders generally for a private company
50 shareholders
What is money used for when expanding a business
- opening new outlets
- exploit new markets
- hire more staff
- purchase new equipment
- undertake research and development (R&D)
What is venture capital
The money that is invested in small and sometimes struggling businesses that have the potential to become very successful
